• Fri
  • Aug 22, 2014
  • Updated: 3:37pm
BusinessEconomy

China's economy expected to grow 7.4pc

Investment still seen as growth engine despite central government push on consumption

PUBLISHED : Wednesday, 30 April, 2014, 1:31am
UPDATED : Wednesday, 30 April, 2014, 1:31am

The mainland's gross domestic product may grow 7.4 per cent this year driven largely by investment, the Chinese Academy of Social Sciences says in its latest outlook on the economy.

The government think tank said investment would remain the main engine for growth despite efforts to boost the role of consumption.

"If any measures are to be taken this year to stabilise growth, it would be from investment," CASS vice-president Li Yang said yesterday at a briefing to release its spring blue book on the economy.

The contribution from consumption to GDP growth dropped to just 50 per cent last year from a peak of 55.5 per cent in 2011, while that from net exports was a negative 4.4 per cent.

In comparison, investment's contribution picked up steadily to 54.4 per cent from 43.6 per cent in 2006, Li said.

However, he said it was getting more challenging now for China to accelerate investment.

"We have to tread very carefully while seeking to drive up investment, given that the excessive capacity has yet to be fully squeezed while supply of labour is getting tighter," he said.

The blue book also pointed out that the leverage ratio in society was on the increase, with debt climbing to 215 per cent of GDP in 2012 from 170 per cent in 2008.

Debt borrowed by the corporate sector amounted to 113 per cent of GDP, far exceeding the acceptable risk thresholds at developed nations.

China's GDP expanded 7.4 per cent in the first quarter from a year earlier, cooling from the 7.7 per cent growth in the previous quarter. Fixed asset investment grew 17.6 per cent from a year earlier, the slowest in year-to-date terms since 2002.

The CASS report said nationwide fixed asset investment was likely to grow 18.4 per cent this year, compared with 19.6 per cent last year.

"That would be a tad slower than last year's rate, but remains relatively fast," the report said.

Investment should be directed to areas that could bolster consumption, upgrade technology, promote energy-saving and protect the environment, Li said.

CASS said Beijing ought to tolerate slower growth to offer room for structural adjustments and reforms, urging the government to lower the minimum growth target to 7 per cent this year.

Beijing has said the target for this year would be kept flexible at around 7.5 per cent. Economists said the government's bottom line for growth might be 7.2 per cent or 7.3 per cent.

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Investment should be directed to areas that could bolster exports as well, to help sustain the country's economic and employment growth.
One important argument for the non-sustainability of exports as a driver of the country's economic growth is that China is too big in size --- the world population is simply not large enough to absorb all the goods manufactured and exported by the country.
But right now, that equilibrium seems to have been broken.
Given the economic recovery of the Western economy, China's exports doesn't seem to grow commensurately.
This shows that part of her exports share in the world market has been grabbed by other EM countries.
Why doesn't China continue to devalue the yuan to get back her fair share of the cake ?
Why be a gentleman while the other countries (like Japan) are all petty persons ?
There should be no inconsistency when the country increases her exports and upgrade her manufacturing value chain both at the same time.
Over time, China should export more and more high-tech products to the other countries, like what Germany has been doing.
The Empire should strike back.
 
 
 
 
 

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