Chinese growth weakest for 25 years – should you be worried?
Key areas slowing, but headline rate has calmed fears of a 'hard landing' for key economy
The Chinese economy has posted its lowest quarterly growth figures in 25 years, expanding by 6.8 per cent in the three months to December.
This meant the annual growth rate in 2015 was 6.9 per cent, down from 7.3 per cent in 2014 and a far cry from the decade-long period of double-digit growth that made China the world's second-largest economy.
The figures summed up "a tumultuous year that saw the slowdown's impact spill over to global markets and batter the government's reputation for competent economic management", says the Wall Street Journal.
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Investors are withdrawing capital from China at an unprecedented rate, not least because government interventions appear increasingly ineffective. A series of policy decisions, including the devaluation of the yuan and a total of six interest rate cuts since November 2014, do not appear to be reversing the slump.
Nevertheless, analysts predict that in the coming months, Beijing will look once again towards stimulus packages, which could take the form of further rate cuts or an injection of more cash into the economy.
Meanwhile, the markets have been in turmoil as investors in developed nations worry about the effects of a rapid Chinese slowdown on exporters. With global growth rates being downgraded, there are fears that nascent recoveries that have been gathering momentum since the financial crisis could be derailed.
Soft landing
The underlying issue facing China is a change in the balance of its output. "Central government wants to move towards an economy led by consumption and services, rather than one driven by exports and investment," reports the BBC. "But managing that transition has been challenging."
However, it is broadly succeeding. The Financial Times notes that sectors that have traditionally driven Chinese growth and global commodity demand have slowed considerably, with inflation-adjusted growth in industry and construction a "paltry" 0.9 per cent for the full year. On the other hand, the services sector grew 8.2 per cent and was mainly responsible for the respectable headline growth figure.
The Chinese government has long predicted that growth would slow during its transition and targeted a rate of "around seven per cent" for 2015. That it broadly hit this has buoyed markets, who had feared a "hard landing" for the economy, and sent stock markets in Europe soaring by more than two per cent today.
The International Monetary Fund has predicted China's economy will grow by 6.3 per cent this year and 6 per cent in 2017.
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