China optimistic despite drop in annual growth rate

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A vendor waits for customers at a counter selling New Year decoration items inside a shopping mall in Beijing, China on Tuesday, 17 January 2012. China appears on track to avoid an abrupt economic slowdown with possible global repercussions after growth eased to a still robust 8.9 percent in the last quarter of 2011. Photo - Andy Wong/AP

According to the latest government figures, Chinese economy slipped down 8.9% in the fourth quarter. The GDP expanded 8.9% in last three months of 2011 compared to 9.1% in the Q3.

The statistics also revealed that last year’s growth was around 9.2% compared to 10.4% in 2010. Meanwhile, economy experts have warned of further slowdown this year.

Steven Xu, Director of The Economist Corporate Network, said he was surprised by the strong fourth quarter number, but stuck to his view that the economy would slow down to 8% in 2012 compared to 9.2% in 2011. ?An 8.9%GDP growth is not going to change the reality – reserve requirement ratio will be cut massively throughout the year,??he said in an interview.

Some investors have also predicted China?s economic growth in 2012 could even slow down to 7% which would prove to be a hard landing for the world’s second biggest economy.

Alistair Thornton, analyst at HIS Global Insight pointed out that, while 7% growth rate may seem respectable to other countries, but for China?s point of view it is catastrophic. He also argued that the third quarter of 2008 and first quarter of 2009 has slid from 9% to 6.1% which effected 20 million unemployed migrants to roam countryside.

GROWTH CONCERNS

Being the largest growing economy in the recent years, stimulus measures taken by the Chinese government have created asset bubbles. Analysts suggest certain intervention measures have led to overheating in the property market.

The report announced by the National Bureau of Statistics showed the real estate investment in China rose 27.9% in 2011, compared to the annual growth rate of 29.9% between January and November.

The major reason that accounted for the slow growth rate is the slowdown in exports because of weakening demand from Europe and the US. According to the data, the outcome from the factory has lowered to 13.9% in 2011 compared to 2010.

POSITIVE GROWTH

Though the country growth rate has slowed down, many analysts are still positive about the future. Chris Probyn, chief economist at State Street Global Advisors, thinks the latest numbers have further bolstered the case for a soft landing with an expected growth of around 8.5% in 2012.??Just about everyone, now believes that we can avoid a hard landing,? he said in an interview.

To bring some change in the economy, analysts are suggesting Chinese government to alter its growth strategy that can be more sustainable for the long term.

?They have to focus on sustainable development path, away from investment and more focused on domestic markets here in China,??Patrick Chovanec, Associate Professor at Tsinghua University School of Economics and Management in Beijing, said.

NEW YEAR DISAPPOINTMENT

With Chinese Lunar New Year holiday approaching, the slowdown effect will linger in the first three months of the year when the production will be temporarily shut down due to festive mood.

Ken Peng Economist at BNP Paribas said: ?We are in the period where early Chinese New Year is boosting activity ahead of the holiday, which is setting us up for disappointment ahead.??He reckoned economic growth slip in the first quarter would be the worst in three years.

Sources: CNBC, BBC News, Moneycontrol

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