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Slower, Steadier China Still In The Race

posted 15 Jul 2013, 05:20 by Mpelembe   [ updated 15 Jul 2013, 05:20 ]

"China's GDP growth was just 7.5 percent in the second quarter of 2013. Now if that continues for the full year - as the official target suggests it will - that will be the slowest growth rate since 1990.

Now there are 2 reasons why this is happening. One is that China's huge export machine is slowing down. Growth in exports for the second quarter adjusted for inflation was just 1.7 percent according to RBS.

The other reason is just that China's getting more mature. It's harder and harder to produce those double-digit growth rates as China has a shrinking work force and can't put quite as much capital to work as it used to.

But don't panic. There are 2 reasons why this could actually be good for China. One is that 7.5 percent is still - by global standards - pretty impressive. Latin America is only going to grow about 3 percent this year according to the IMF. So 7.5 is nothing to be ashamed of.

The other thing is that this could be the good kind of slowdown. China wants to reform all kinds of things from the environment, to the way it plows capital into heavy industries like shipping and steel.

Now that can't happen unless growth comes down to a more reasonable level, something like 6.5-7 percent. Li Keqiang the premier of China says that growth's still above the level that he feels comfortable with but it's clear that the government is more and more tolerant of a growth rate somewhere below 7 percent, maybe 7-7.5 .

Now it's not enough to say that a slow growth rate means China's fixed its various problems and has rebalanced its economy, but it's certainly clear that without slowing growth, China won't be able to make the transition to a more sustainable path.

So at this stage, 7.5 percent is nothing to worry about. It may even be a reason for confidence in China over the next few years."