China’s GDP grew by 7.3% year-on-year in the third quarter of 2014, the slowest pace since the global financial crisis five years ago. The property sector, a key driver of growth in recent years, has dragged down overall performance.
China now looks set for its slowest annual growth since 1990. The Chinese government described the slowdown as the “new normal”.
What the commentators said
“Those looking for a collapse of the Chinese economy will continue to wait,” said Alex Frangos in The Wall Street Journal. The government is trying to wean the economy off a credit-fuelled investment binge and to encourage consumption, even as the property market slides.
So far it has done well. It has provided “dribs and drabs of stimulus”, but has steered clear of broad interest-rate cuts to avoid a return to “the old debt-fuelled playbook”.
There are “signs of rebalancing”, added Linda Yueh on BBC.co.uk. Rising wages have helped to boost retail sales, and consumption now exceeds 48% of GDP for the first time – which is about par for the course for a country at this level of development.
But it’s too soon to say that China has successfully popped its credit bubble. Total debt relative to GDP jumped from 147% in 2008 to 251% this year. Credit is still growing at nearly twice the rate of nominal GDP, noted Jamil Anderlini on FT.com.
But don’t expect a Lehman-style meltdown. China owns its banks, says The Economist, and has enough money to bail them out in a crisis. The danger is that policymakers “do too little to clean up the financial system, weighing down its economy for years with zombie firms and unpayable loans”.
Free-market reforms to the banking sector are crucial – “a culture of bankruptcy” and moral hazard must replace state “lifelines”. Otherwise China could end up like Japan – without having got rich at all.