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China: Slowest Growth in 13 Years

A report this morning says that China's 2012 GDP growth was 7.8%, with year/year Q4 2012 GDP growth of 7.9%.

There are a number of issues to consider:

  • China's continued economic growth has become critical to world economic growth, as developed economy growth continues to lag;

  • the report says that Q4 2012 growth was in part a function of infrastructure spending in China. Infrastructure spending, while a contributor to GDP, is not spending that sees immediate change in economic day/day activity. Rather, it is spending that ought to support and contribute to longer term economic growth as a country's economy expands based in part on the incremental infrastructure that is an enabler of that;

  • absent China's continued economic growth at high percentage levels, and 7.8% qualifies as a 'high percentage level', the world's developed economies will not grow even at their current low rates - which low rates in many cases impute little or no 'real growth', but only inflationary growth. This is particularly important for resource based economies Australia and Canada, because China's growth affects the growth of their economies both directly - and indirectly by impacting the growth rates of their non-China trading partners; and,

  • irrespective of whether it is China's or any other country economy, percentage growth is a problematic concept. This is because percentage growth is measured on a continuously compounding base of economic activity. Simply stated, it is much easier to grow in absolute terms from 100 units to 110 units than it is to grow from 1,000 units to 1,100 units - yet both are stated as a 10% increase.

China's growth rate is a critical world economic metric, and one that requires continuous focus by traders and investors.

You might also want to read China's economy sees weakest growth in 13 years, which among other things says: "The country's economy is widely seen as having matured to the point where the growth model of the past, including public spending for big ticket infrastructure projects, must be modified".

Topical References: China's economy posts slowest growth since 1999, from Reuters, Kevin Yao and Aileen Wang, January 18, 2013 - reading time 4 minutes. Also read China's economy sees weakest growth in 13 years, from The Telegraph, January 18, 2013 - reading time 3 minutes.

 

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