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China Business Weekly

The outlook for China's economy in 2014

With problems still afflicting the global economy, many countries including Thailand are hoping for strong growth in China as a boost to their own economies, but it may be difficult for China to maintain its role as an economic powerhouse, given challenges such as a weaker export market and higher domestic costs.

China's latest GDP figures showed a growth rate of 7.7 per cent for last year, which is well below the average in the last decade and well above the 7.2-per-cent floor set by Premier Li Keqiang in November, which would be sufficient to maintain employment at present levels.

Many people were taking a keen interest in the latest growth figures, as there had been mixed signals. In December, the PPI (purchasing managers' index) fell to a four-month low, signalling a possible slowdown.

However, year-end statistics for Chinese car sales provided a welcome surprise as they rose by nearly 14 per cent, indicating robustness in the domestic market. Exports expanded by 7.9 per cent, reflecting improving demand from Europe and the US, although December was slower than the previous month.

While the 7.7-per-cent growth rate slightly exceeded expectations and is fairly positive, it is still the most tepid in 14 years and many observers are predicting that China's economy will decelerate further this year. This pessimism was supported by a gloomy report released on December 25 by National Development and Reform Commission Minister Xu Shaoshi.

He said the global economic recovery remains uncertain and the international market has failed to produce strong demand. On the domestic front, there are many problems that will inhibit growth such as higher labour and environmental costs, high levels of local government debt and industrial overcapacity, he said.

Amid the gloom, one bright spot may be the easing of the one-child policy, as some predict this will stimulate a baby boom that will lift consumption and spur the economy. The government also points to certain indicators that are doing better than expected, such as the contribution of the service sector to the economy, the level of urbanisation and the narrowing of the gap between urban and rural residents.

Even if China's growth is slowing, it is still on target. The 12th five-year growth plan for 2011-15 set an average annual growth target of 7 per cent. Since the economic growth rate was 9.3 per cent in 2011 and 7.7 per cent in 2012, it seems that a further slowdown is part of the plan, as China switches its focus from exports to domestic consumption.

Thai businesses will still benefit from the steady economic performance of China, but if they are expecting a return to boom times they may be disappointed.



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