The annual growth figure missed the government’s target of 7.5 per cent for the first time in years, and was the slowest since China faced international sanctions following the 1989 Tiananmen Square massacre. In 1990 GDP growth was at 3.8 per cent.
The latest figures show a slowdown from growth in 2012 and 2013, which was at 7.7 per cent both years.
China ended last year however with growth holding steady at 7.3 per cent in the fourth quarter, according to the National Bureau of Statistics, beating some analysts’ expectations.
China had averaged economic expansion of around 10 per cent a year over the past three decades, with millions of people being lifted out of poverty.
But officials said lower growth is the “new normal” as policymakers carry out economic reforms.
“The economy is maintaining steady operation under the new normal, with positive trends of stable growth, optimized structure, enhanced quality and improved social welfare,” said Ma Jiantang, head of the National Bureau of Statistics.
In a projection also released Tuesday, the International Monetary Fund revised down its forecast for Chinese economic growth to 6.8 per cent this year. The World Bank projected growth of 7.1 per cent in 2015.
“China can no longer be the locomotive of the world economy,” said Joerg Wuttke, president of the European Chamber of Commerce in China.
Wuttke told dpa he expects slower growth and delayed investments in China in the next two or three years but said growth could pick up if the government “follows through with necessary reforms.”
“Structural reform can only happen if local governments stop giving artificial life support to their local champions. Tax reform is also very necessary so that mayors are not dependent on establishing industrial zones,” said Wuttke.
Other economic indicators, such as industrial output, real estate investment and fixed-asset investment growth suggest slower growth may continue in the world’s second-largest economy.
Industrial output grew 8.3 per cent in 2014 from a year ago, down from the 9.7 per cent growth in 2013, the statistics bureau said Tuesday.
Growth in China’s real estate investment slowed to 10.5 per cent in 2014, down by 9.3 percentage points from a year earlier, while property sales volume declined 6.3 percent from a year ago to 7.63 trillion yuan.
The annual growth in China’s fixed-asset investment also continued to cool in 2014 to 15.7 per cent, bureau data showed.
On the other hand, the retail sector has picked up with retail sales of consumer goods totalling roughly 26.6 trillion yuan last year, up 12 per cent year on year in 2014.
The government has been trying to rebalance the economy towards services and consumption as drivers of growth, instead of relying on investment and manufacturing.
China’s top 5 economic challenges
Beijing (dpa) – China faces major challenges as it seeks to strike a balance between steady economic growth and structural reforms. These are some of the most daunting challenges ahead:
1) Economic slowdown. The International Monetary Fund said Chinese growth would slow to 6.8 per cent this year and 6.5 per cent next year. The government accepts slower growth as it prioritizes reforms to reduce risk from rapid credit and investment growth. But failure to succeed in such reforms could mean losing control of the pace of economic slowdown. That would narrow options for fiscal and monetary policies.
2) Rebalancing from exports to domestic consumption. Rapid economic growth in the past three decades rested largely on exports around the world. As demand for Chinese exports decreases, it must shift from reliance on manufacturing and debt-funded investment toward domestic consumption and the service industry. That would require improved labour conditions and overhauling financial systems currently geared toward investment.
3) Balancing structural reform and financial risk. New policies to support growth will need to be balanced with mitigating financial risk. “An eased monetary policy will facilitate Chinese corporations to de-leverage and reduce rising default risk,” according to chief economists of the Australia and New Zealand Banking Group.
4) Possible housing bubble burst. The real estate market underwent rapid growth during 2000-08, and is an important driver of the economy. But vacancies are sharply rising, with many apartments standing empty as speculative purchases. Analysts are divided about whether this could lead to a dangerous collapse, affecting other areas such as banking and construction and possibly leading to economic crisis.
5) Local government and company debt. Local government debt has reached nearly 60 per cent of China’s gross domestic product. The central government said it would set a cap on local borrowing, but has not yet announced specific measures. Half of Chinese debt is owed by companies, most of them state-owned enterprises and property developers. The central bank is concerned about reducing bad loans, as it edges toward a long-anticipated move to make more competitive.