China Economic Briefing – 20 January 2015

China’s economy continues on its gradual transition, away from a manufacturing hub towards a modern, consumption based economy. One signal of this trend is the increasing share of China’s services sector (tertiary industries), averaging 48% of GDP in 2014 (up from 47% in 2013).

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Slowing trend set to continue in 2015, but the decline is a manageable one

China’s national accounts data showed that the economy expanded by 7.4% in 2014 (compared with our forecast of 7.3%), the slowest annual rate of growth since 1990 and below the official target of 7.5%.

Across 2014, we observed a slowing trend in China’s economic growth, as weaker levels of investment and credit growth impacted and Chinese authorities resisted calls for widespread stimulus, noting that lower rates of growth were a ‘new normal’.

We expect this trend to continue in the short term, as the Government’s reform agenda continues – prioritising a more sustainable consumption led model of growth. China’s growth is expected to slow to 7.0% in 2015 and 6.8% in 2016.

Ongoing weakness in the residential property sector will act as a drag on the construction sector (long a key contributor to China’s growth) – providing some downside risk. In part to counter this risk, the Government accelerated 300 infrastructure projects in January, valued at around RMB 7 trillion.

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