China’s 7.7% GDP growth shows stabilisation, but for how long?

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Official data suggests the world’s second-largest economy seems to be stabilising, as the growth rate for 2013 matched the previous years’.

According to China’s National Bureau of Statistics, China’s GDP grew at a yearly rate of 7.7% (October to December period).

So whilst this was down from the previous quarter’s 7.8% growth, it was near the Chinese Government’s target of 7.5%.

Indeed, looking ahead, expansion in 2014 is expected to slow to 7.4%.

Country gauge

China’s GDP growth is an important gauge to monitor stability after the county’s runaway expansion over the decades.

As part of a concerted effort to stabilise its economic growth, China implemented a series of reforms last year ranging from the social to economical.

This included a reduction on the strict rules surround the country’s one child policy, and the establishment of a national security council.

In addition, the Government promised to crack down on pollution within the energy sector.

Whilst the reforms are universally acknowledged as necessary, the Chinese Government is expected to struggle with the implementation – and economic gains may not be reflect in data for years ahead.

Wang Tao of UBS has stated that the reforms’ order of implementation and the processes used to apply them will determine their outcome on the economy.

She states an emphasis should be placed on fiscal policy and state-owned enterprises to keep annual economic growth between 6% and 7%.

However many other experts are not so optimistic, claiming that the plans are “vague” and there is still too much dependence on state-backed businesses.

Debt woes

Another worry to the economy’s health is the potential for “bed debt.”

China’s rapid growth prompted banks to lend record sums of money to drive the economy and sustain the high growth rate.

However, some analysts are predicting the money may not be recovered; having gone into unproductive investments that have not made good on the loans.

This could lead to a significant dent in the country’s growth.