Official economic figures for December and the fourth quarter are not strong enough to drive away worries over the Chinese economy.
Gross domestic product rose 6.8 percent in the last three months of 2015, weaker than an expected 6.9 percent growth and marked the slowest expansion since 2009.
The 6.9 percent GDP growth for the full year is also the slowest since 1990, although still in line with the government target of about 7 percent.
The December data shows further deceleration of the economy, especially in fixed assets investment, and a challenging outlook for the current year.
However, some signals indicate that the transformation toward a service and consumption-led economy is ongoing.
The service sector has accounted for over half of the GDP since the second quarter of 2015.
It expanded 8.3 percent in 2015, compared with a 6 percent growth in the industrial sector and a 3.9 percent expansion in agriculture.
Strong sales in the auto and real estate industries reflect a recovery in the real economy, which will support overall growth, credit expansion and increase in fiscal expenditures.
In trade, the value of exports in US dollar terms recorded a negative 1.4 percent growth in December, improving from a negative 6.8 percent expansion in November.
Exports benefited from rising demand from developed economies. Imports were found to be in a similar situation.
China recorded a US$60.1 billion trade surplus in December, higher than estimates. But foreign reserves dropped significantly.
Although the December trade figures beat estimates, amid a weak global economy, we remain cautious about the export sector.
Despite the pressure of capital outflow, we expect China to continue recording a trade surplus this year.
Meanwhile, overcapacity in China and the slow price of global commodities impose a deflationary pressure on China.
Our forecast is that amid the loose monetary policy and the base effect, the consumer price index will rise moderately while the deflation of producers purchase index will ease.
The transformation toward a consumption-led economy still needs policy support to offset the impact of a slowing manufacturing sector.
We believe a stable job market and increasing household income will in the short run support the consumer industries.
But it is necessary for the government to launch more counter-cyclical measures to boost demand and stabilize the economy.
This article appeared in the Hong Kong Economic Journal on Jan. 25.
Translation by Myssie You
[Chinese version 中文版]
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