Will China’s Economy Slow Down in 2014?

China

A new poll shows that economists believe that China’s growth will slow toward the end of this year and moving into 2014, Reuters reports. According to a poll of economists conducted by Reuters, China’s economic growth will total 7.6 percent for the year 2013. This comes in above Beijing’s official goal of 7.5 percent, and also above its 7 percent bottom-line threshold for economic growth. However, this would make 2013 the slowest year for China’s economy in over 20 years.

Economic growth jumped to 7.8 percent in the third quarter of this year, up from 7. 5 percent during each of the first two quarters. Spurred in part by a governmental stimulus package during the summer, many believe that the upsurge will start to fade now that liquidity in the country in being reigned in once more. This would explain the 7.6 percent overall figure seen in the Reuters poll, but it would not bode well for the Chinese economy moving into 2014.

The stimulus has had an unintended side effect in China, rising inflation rates. Inflation soared to 3.1 percent in September in the Asian nation, mostly caused by rises in food prices that can be especially harmful to the country’s poor. House prices have also increased dramatically in the country, contributing to an unsavory economic picture wherein rising costs of living are not being met by corresponding rises in income for many of China’s citizens. The poll of economists showed that most believe that inflation rates next year will come in at slightly above 3 percent.

One problem that has been widely reported is the questionable status of China’s banking sector. With reports that China’s largest banks have tripled their rates of debt write-offs, some have begun to wonder whether a situation resembling that of some of the failed European banking systems has begun to surface in China. Especially with the growth of the Chinese shadow banking sector, the credit situation in the country remains perilous.

Another lending-related issue is the debt levels of the Chinese government, which many believe have been secretly inching upward over the past two years. While local municipalities are not allowed to issue bonds in China — a rule that some speculate may be changed by the year’s end — some areas have financed private holding companies to execute infrastructural expansion, in essence bypassing the rule. A thorough review of the Chinese debt situation is expected to be published by the end of 2013.

One piece of good news for the Chinese economy came from the manufacturing sector, where the Purchasing Mangers’ Index showed a flash rating of 50.9 in October. Representing an increase of 0.7 from September, this would also be the highest value seen in several months. However, Chinese officials and economists alike have stressed the importance of focusing on consumer-driven demand and sustainability over production and manufacturing, even at the cost of lowered rates of economic growth in the short-term.

Don’t Miss: Are Earnings Making Markets Dip?