China posted a GDP growth rate of 7.9% in the fourth quarter of 2012, which is either the fastest rate in two years, or, based on the annual measurement, the slowest in 13 years and the precursor of a better 2013.
The debate that positive changes in China’s expansion always brings include whether the improvements are sustainable when much of the world is currently in recession and may post slow grow for years. The measures the central government of the People’s Republic have deployed to lift China beyond the drag of the global economy are similar to those it used in 2008 and 2009. China can buy its way to growth, as it has proven very effectively.
Economists have pointed out that China has put more money into its economy recently through a large increase in infrastructure projects, which create jobs for legions of people. The government also has made money more easily available, another means to fuel expansion. There is a fair argument that these actions will drive bank bad debt ratios higher. China’s bank system may collapse eventually, because too many loans are faulty. However, that assumes China cannot shore up its own financial system, if it needs to. That is a bad bet.
The criticism of infrastructure projects is that much of what is built is not used, at least not efficiently. Highways may be larger and longer than they have to be to accommodate anticipated traffic. Dams may produce electricity that is not needed. New airports may be larger than they have to be to accommodate current air traffic. The Chinese government can say it is preparing for a future with more cars and more planes. It is anyone’s guess whether these forecasts are reasonable.
Easier money and infrastructure spending increase consumer activity. There was a sign of that in the fourth-quarter figures released by the People’s Republic. Retail spending rose 15.2% in December, well ahead of overall GDP growth. China’s middle class, still dwarfed by the one in the United States based on its percentage of the population, can and will grow as China invents its own consumer economy.
Outsiders might suppose that the government in China will not risk the bubbles that come from too much stimulation and too much growth. Right now, it appears the government will take that risk. And it can continue to as long as there is money to keep the stimulation growing. China has all the money in the world by many measures. It can and will spend that to avoid a strong connection to the balance of the world that is still stuck in neutral.
Douglas A. McIntyre