Country briefing note <download pdf file>
Growth slows as global economy weakens
- In 2012, economic growth decelerated to 7.8% from 9.2% recorded in 2011. After slowing of growth in first three quarters of the year, growth picked up in the last quarter of 2012, helped by a mix of expansionary policies, robust domestic consumption resulting from strong income growth, and capital formation.
- Investment in real estate development grew in 2012 but at a rate lower than in the previous year. While residential property prices continued to rise, other housing data point to signs that China's real estate market is stabilizing.
- China is expected to grow by 8.0% in 2013, with domestic consumption contributing a larger share of growth as China continues to rebalance its economy. Downside risks include a further slowing of demand from the euro zone and the United States, which could quickly reverberate through Asia's production and trade networks, in which China occupies a central position.
Inflationary pressures subside but upside risks remain
- Inflation, which was a major concern for China in 2011, slowed in 2012 due to moderating growth, stable commodity prices and cooling property markets. The consumer price inflation fell to an average of 2.7%, down from the previous year's inflation rate of 5.4%.
- In 2013, inflation is forecast to rise modestly to around 4% but upward risks remain. With rapidly increasing wages in China, producer prices may rise sharply, particularly in labour-intensive products. Also, speculative bubbles may arise due to excess liquidity in other parts of the world.
Expansionary monetary and fiscal policies adopted to address growth momentum
- Reduced inflationary pressure made it relatively easier for policymakers to loosen monetary policy. During the middle of 2012, China cut the policy interest rate (one-year lending rate) twice to bring it to 6%.
- The People's Bank of China also reduced the reserve requirement ratio twice and reaffirmed its commitment to widen the use of the yuan currency in cross-border trade and investment.
- Alongside monetary easing, fiscal policy is being used to revitalize the economy. Since mid-April 2012, through different policy announcements, the Government implemented a series of supportive measures to stabilize the country's growth momentum.
- Compared to the stimulus package in 2009, the recent stimulus was smaller in size, had a shorter time span, put less emphasis on credit and relied less on local government funding. The package heavily relied on infrastructure spending. Also, this time around there was a greater focus on energy-saving and innovation.
Net exports remain positive; China becomes world's largest FDI recipient
- For 2012, China's exports grew 7.9% and imports were up by 4.3%. As a result of weakening exports, the current account surplus shrank to 2.6% of GDP in 2012, compared with a surplus of more than 10% of GDP in 2007.
- Inflow of FDI to China contracted by 3.7% in 2012 as global uncertainty built up. However, China became the world's largest recipient country of FDI. At the same time, outward FDI flows from China expanded by 28.6% in 2012.
Addressing socioeconomic challenges
- The Government is addressing income inequality as a top priority, and to this end unveiled comprehensive guidelines in February 2013. Under the new plan, the average real income of urban and rural residents will be doubled in 2020 from the 2010 level. The middle-income groups will be expanded and the number of those living below the poverty line will be sharply reduced by 80 million by 2015.
- To enhance livelihoods for urban dwellers, the Government is also planning to accelerate the reform of the rigid Hakou Household Registration System. Currently an estimated 200 million rural migrant workers lack residency rights. At the same time, China will increase investment in its agricultural sector in 2013 as part of wider efforts to improve rural livelihoods and food security.
- The Survey 2013 calculates that the overall investment expenditure for providing a job guarantee, ensuring universal access to education and health services, providing disability benefits and an old-age pension system as well as providing universal access to modern sources of energy would amount to 2.6% of GDP in China in 2013. The figure would rise to 3.3% of GDP in 2020 and reach 5.25% by 2030, when all goals would be met.
Impact of a rebalancing China on Asia-Pacific economies
- ESCAP analysis shows that despite a slowdown in GDP growth in China, an increasingly consumption-driven Chinese economy would benefit regional exporters of consumer goods through increased penetration in the Chinese market. The total benefit in exports for the region would be almost $13 billion during the period 2013-2015.