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Chinese economy showing first signs of recovery since 1999

Industry Sector

Finance and Banking

Published

18 January 2013

Author

Alex De Angelis

Type of News

Financials

China's economy, the world's second largest, is showing small signs of a recovery that could help it emerge from its worst economic period in 13 years.

According to the latest government figures, growth picked up to 7.9% in the final three months of 2012, from 7.4% in the previous quarter.

Evidence of a burgeoning recovery in exports, stronger than expected industrial output and retail sales, together with robust fixed asset investment, all signalled that Beijing's pro-growth policy mix has gained sufficient traction to underpin a revival without yet igniting inflationary risks.

Full-year growth of 7.8% was also just ahead of the poll's 7.7% call and comfortably ahead of the government's own 7.5% target, which just months ago seemed to some economists to be in jeopardy.

For 30 years, China grew at about 10% on average, but the Chinese economy is now in transition. They have an ageing population and declining marginal productivity of capital. These are longer-term trends that mean they cannot grow at 10% forever. Growth is expected to average between 7% and 8% over the next few years, which is in line with government expectations.

Data released alongside GDP numbers on Friday showed home prices extending a slow rise in December, with an average rise of 0.3% month-on-month in 70 major Chinese cities, the fifth month in the last six to show an increase, despite government efforts to temper prices.

Real estate investment, which accounted for 13.8% of China's GDP in 2012, rose 16.2% last year from a year earlier and remains a key component of overall fixed asset investment - the cornerstone of Beijing's recovery strategy.

Other data released alongside GDP showed industrial output grew 10.3% in December from a year ago, versus expectations of 10.1%. Retail sales in December rose 15.2% on a year ago versus an estimated 14.9% in a Reuters poll.

Market reaction was generally upbeat, with Asian shares advancing and platinum and palladium following suit, while oil traders took the opportunity of data confirming the recovery to book profits after two sessions of steep rises.

China's new leaders must stabilise the economy this year to keep employment high while avoiding a surge in housing prices and inflation that could undermine reforms needed to overhaul the country's export-oriented growth model.

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