Last year saw high and stable economic growth, subdued inflation, and a smaller current account surplus. Slightly lower growth, higher inflation, and a still smaller current account surplus are forecast for 2014 and 2015. Containing credit growth while maintaining growth momentum is one policy challenge, and another to improve income distribution.
After decelerating to 7.6% year on year in the first half of 2013 as domestic demand weakened, growth in the gross domestic product (GDP) of the People’s Republic of China (PRC) rose to 7.8% in the third quarter following a limited fiscal and monetary stimulus, then moderated slightly to 7.7% in the fourth quarter. Over the full year, GDP grew by 7.7%, the same rate as in 2012 and above the government target of 7.5%.
On the supply side, the service sector expanded by 8.3%, contributing 3.6 percentage points to GDP growth. Providing the impetus to growth in the sector were urbanization, rising household incomes, and the rollout since August 2013 of reforms to taxes on services, which effectively lowered them. Industry (including manufacturing, mining, and construction) grew by 7.8%, driven mainly by infrastructure projects and real estate development. The share of services in GDP rose to 46.1% in 2013 current prices, while that of industry fell to 43.9%.
A good harvest brought agricultural growth up to 4.0% in 2013, after a weaker performance in the first 9 months.
On the demand side, investment contributed 4.2 percentage points to GDP growth in 2013, up from 3.8 in 2012, and consumption contributed 3.8 points, down from 4.1. Thus no further progress was made toward replacing investment-driven growth with growth driven by consumption. Investment growth was strongest in agriculture, underlining the government’s perception of agriculture as the “foundation” of the economy, followed by services and industry.
|Selected Economic Indicators (%) - People's Republic of China||2014||2015|
|Current Account Balance (share of GDP)||2.0||1.9|
Source: Asian Development Outlook (ADO) 2014; ADB estimates.
GDP growth is projected to decelerate somewhat to 7.5% in 2014, which is the official target, and 7.4% in 2015. Slightly weaker growth momentum from the fourth quarter of 2013 is carrying over into 2014. Support for growth over the forecast period should come from more equitable income growth and higher social spending in line with government objectives, which will sustain growth in consumption. GDP growth should also benefit from the upturn in developed countries, which should sooner or later generate stronger demand for PRC exports despite continuing real renminbi appreciation and higher unit labor costs.
Investment growth, on the other hand, will likely decelerate as the government tries to rein in high credit growth, reduce industrial overcapacity, and bring local government debt under control.
Source: ADB. 2014. Asian Development Outlook 2014. Manila.