In the People’s Republic of China (PRC), a weaker-than-expected first half of the year and tighter credit have dampened growth expectations, such that the economy is now forecast to expand by 7.7% in 2013 and 7.5% in 2014. This has had knock-on effects for other East Asian economies. East Asia's growth is revised down from 7.1% to 6.7% in both 2013 and 2014.

Source: Asian Development Outlook (ADO) 2013; ADB estimates.

The PRC’s weaker-than-expected GDP growth of 7.7% year on year in the first quarter of 2013 and 7.5% in the second quarter points to slow but persistent growth deceleration.

In May, industrial production expanded by a moderate 9.2% and investment growth also weakened. Turbulence in the domestic interbank market in late June elevated funding costs (particularly for nonbank finance) and made financial institutions more averse to risk. This could further weaken investment in the remainder of the year, undermining growth at least in the short term.

On the upside, consumption is expected to support growth as consumer confidence remains high and retail sales are picking up. This view is bolstered by continued wage growth in real terms and strong employment despite slackening economic growth.

Imports and exports both saw growth decelerate substantially, partly because of a crackdown on overinvoicing trade flows to Taipei,China and Hong Kong, China to skirt capital controls. Export growth will likely remain soft as weak global activity and the strengthening renminbi weigh on external demand. Meanwhile, weaker domestic demand for capital goods and high-end consumer goods will be a drag on imports.

Given these developments, growth in the PRC is revised downward from 8.2% to 7.7% in 2013 and from 8.0% to 7.5% in 2014.

Source: Asian Development Outlook (ADO) 2013; ADB estimates.

With expected declines in commodity prices and decelerating growth, inflationary pressures within developing Asia will be generally less acute than anticipated in the Asian Development Outlook 2013. Inflation in the PRC averaged 2.4% in the first 6 months of 2013, well below the forecast 3.2% for the year as a whole.

Source: ADB. 2013. Asian Development Outlook 2013 Supplement. Manila.

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Economic performance in 2012

Beset by a deteriorated external environment and a cooled real estate sector, economic growth in the PRC slowed from 9.3% in 2011 to 7.8% in 2012, the lowest rate in the past 13 years but still higher than the government’s target of 7.5%. Growth picked up late in 2012, boosted by stimulus measures adopted earlier in the year that included higher public spending, especially on infrastructure, and fiscal incentives. Economic activity - particularly manufacturing and other industry - started to rebound in September in a trend that has continued uninterrupted. Higher growth at 7.9% in the fourth quarter of 2012 ended deceleration that had persisted for seven consecutive quarters. Higher salary and pension increases fueled real income growth - up by 9.5% in urban areas and by 10.7% in rural areas - lifting per capita income in the PRC to $6,080 at the market exchange rate prevailing at the end of December.

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

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