Will China be able to achieve the expected 7.5 percent annualised GDP growth by end 2013?

Will China be able to achieve the expected 7.5 percent annualised GDP growth by end 2013?

In a Bloomberg News article published on October 14, 2013, entitled, “China Exports Unexpectedly Drop as Food Prices Stoke Inflation”, it highlighted the recent September 2013 export figures released during the weekend on October 12, 2013, showing that the country’s overall overseas shipments fell by approximately 0.3 percent from a year earlier, missing expectations of all the 46 estimates compiled in a Bloomberg News poll of several economists, while imports rose by a more-than-forecast 7.4 percent. The export figures were released by the Customs Division in China. In a separate release on October 14, 2013, the statistics bureau in Beijing released data showing that consumer prices rose by approximately 3.1 percent as a result of the increase in food prices which advanced the most since May 2012.

The recent statistics are some of the trade data released that could weigh on the official Chinese government’s overall annualised Gross Domestic Product (GDP) target of 7.5 percent by 2013 year-end. Several private sector economists have pencilled in their growth projections of slightly higher than the expected 7.5 percent, somewhere between 7.6 percent to 7.8 percent annualised growth rates. The third quarter GDP figure is scheduled to be released on October 18, 2013, which could provide a relative gauge on the year-end figure and pace of growth as the year 2013 winds down to a close. The International Monetary Fund (IMF) has earlier downgraded several of its growth projections in the Asia-Pacific region in a report released last week. This latest statistic from China, along with the ongoing debt impasse in Washington D.C. with a potential debt default approaching on October 17, 2013 if US lawmakers  cannot come into an agreement to raise the debt ceiling cast a deep uncertainty on the overall global economic momentum.

Based on some of the significant details in the report, Bloomberg News reported that sales to South Korea, Taiwan and the European Union (EU) declined from a year earlier and growth in shipments to the Association of South East Asia Nations (ASEAN) region slid to 9.8 percent from the August 2013 of 30.8 percent pace. Exports to the US rose by approximately 4.2 percent, slowing from the 6.1 percent in August 2013. Imports during the month of September 2013 topped the 7.0 percent surveyed by Bloomberg survey. The USD 15.2 billion trade surplus is off based on the median projections of USD 26.25 billion and $28.50 billion in August 2013. The September 2013 figures were slightly distorted by the Mid-Autumn festival, and the currency volatility in Southeast Asia which might have contributed to the missed export expectations. In addition, last year’s comparable trade data was being impacted by the scandal involving the use of fake invoices which artificially boosted up the trade figures at that time.

With the recent release of these latest trade figures for the month of September 2013, it points to quite a deep concern among many market observers over whether the impact of wage inflation, coupled with global slowdown in the world economy could impact the overall annualised GDP growth expectations of 7.5 percent by year’s end. In addition, it casts a serious doubt over Premier Li Keqiang’s approach towards adopting a more non-intervention approach of growing the economy without any additional monetary stimulus coming from the nation’s central bank, the People’s Bank of China (PBOC) will help to drive the economy forward, and whether the Chinese government should perhaps revised its original growth targets to reflect the ongoing issues with the US government debt impasse, and the negative sentiment expressed among major economic institutions, including the International Monetary Fund (IMF), the World Bank, and the Asia Development Bank (ADB) towards the global economy. Emerging economies, including the famously coined ‘BRIC’ nations (Brazil, Russia, India, and China) have saw massive capital outflows during the past few months due to the potential uncertain disorderly disruptions to financial markets following the widely-expected US Federal Reserve (US Fed) moves to start withdrawing its USD 85.0 billion a month monetary stimulus programme. These issues have been brought to some concerns over the ability by policy makers to be able to steer their economies towards a sustainable path of growth in the face of the increasingly dire global economic conditions.

The latest trade figures have also illustrated the challenges faced by the Chinese government, and its people as the country’s economy is gradually being transformed towards an advanced stage of growth. The Chinese people have become more global oriented, and mobile as well. Most of the Chinese people have become much more affluent than their predecessors before former late Premier Deng Xiaoping undertook major economic reforms to transform the country to the current world’s second largest economy. China is increasingly no longer viewed as a global manufacturing hub as many other low-cost countries such as the IndoChina region, South Asia, the Central Americas region, Myanmar, etc. have become more cost competitive, and readily available labour are used to meet the demand as compared with the increasingly shortage of production labour in China, etc. China has also been transformed to a more service-oriented economy, which is unimaginable a couple of years ago, when there was a massive rural migration. The young generation coming from the rural region have preferences for jobs in the service-oriented industries, rather than working long hours in the production assembly lines, and most of them have aspirations of becoming entrepreneurs, trying to mimic the likes of Facebook, and Google. If one were to take a look at Chinese technology firms, which were originated as startups before, such as Sina-Weibo, Tencent Holdings, Baidu, etc., these Chinese tech firms’ stock prices have shot up tremendously for the past few years upon their listing in the United States. These Chinese tech giants provide a widespread inspiration for many young Chinese to take on the more non-traditional mode of career, rather than working for another firm, or for the State Government.

In conclusion, the latest trade data from China does paint a mixed picture on the overall growth of the economy, which has transformed quite significantly over the past few years. Although China might not grow as much as 9.0 percent to 10.0 percent as before, the expected challenges to the overall growth outlooks could be coming from the change in the structure of the economy, which is constantly undergoing various forms of transformation, including the changing demographic picture of the country as a result of its one-child only policies.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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