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China GDP: Economy slows to 6.7% in first quarter

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China’s economy grew at an annual rate of 6.7% in the first quarter of the year, says the government.


It is the slowest quarterly growth in the Chinese economy in seven years, but in line with expectations and China’s own growth targets.


In the final quarter of last year, the economy expanded by 6.8%.


Friday’s figures confirm the slowing trend in the world’s second largest economy.


But there are pockets of growth. Investment in industrial assets and infrastructure registered a surprise jump by 10.7% in the three months to March, when compared to the same period last year.


Consumers also appear to be spending, with retail sales showing a robust 10.5% jump for March.


That fits Beijing’s attempts in recent years to transform China from an export-led economy to a consumer-led one.


Analysis: Stephen McDonell, BBC News, Beijing


To tell the truth China correspondents struggle with this country’s economic statistics because we don’t know how accurate they are and GDP figures are no exception.


Some provinces and companies are said to exaggerate their production figures to push themselves to the top of the pile but there are also those who are thought to under-estimate their performance so they can attract greater central government support.


For this reason there are economists who measure this country’s financial health using electricity consumption figures instead. By this measure the world’s second largest economy would still be growing but perhaps at not at such a rapid clip.


Asia’s economic giant is attempting to make up for a loss in traditional production and exports by shifting to a model much more dominated by services and domestic consumption. It is in the process of sacking millions of workers and looking for somewhere else to place them.


This might be the correct thing to do in the long run – the government would argue that it is working to eventually deliver more sustainable growth – but, in the short term, what it means is more pain to come.


Reforms ahead


China earned the label of being “the factory of the world” from decades of manufacturing activity, the main driver of its rapid economic growth.


But factory activity has drastically slowed, as foreign companies relocated to cheaper manufacturing bases around Southeast Asia.


Last year marked the slowest growth for the Chinese economy in 25 years, with 6.9% growth compared to 7.3% in 2014.


The government has set the growth target rate for 2016 at a lower range of 6.5%-7%.


Premier Li Keqiang told the annual meeting of parliament last month that China “will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle”.


The National People’s Congress (NPC) mapped out a new five-year plan for the economy and announced measures which included cutting high debt, streamlining state-owned enterprises, and reforming financial markets.


Tony Nash, chief economist at consultancy Complete Intelligence, based in Singapore, said the NPC had “conveyed a sense of real progress that Chinese leadership understood much of the problems and was working toward necessary state sector reforms”.


Mr Nash said analysts “see a more stable environment starting in the middle of the third quarter as some of the reforms announced at the NPC start to take hold”.


Craig James, chief economist at Commsec in Sydney, Australia said there was “a collective sigh of relieve, not just here in Australia but around the world. All the results are above market expectations, it shows the rebalancing of the economy is proceeding to plan”.


“If anything, the figures are surprisingly high, so one wonders about the sustainability of the growth rate for future months. Hopefully we’ll see other economies around the world focus on lifting their own growth rates,” he said.

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Why you should care about China’s National People’s Congress

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There are lots of things you may feel like doing or watching this Saturday – and my guess is deliberating over the details at China’s National People’s Congress (NPC) is unlikely to be high up on the list.


But here’s why it is important. It is an opportunity to gauge what Chinese leaders may be thinking about the economy, and whether they’re as committed to reform as they have said they are.


We are all affected in some shape or form by what goes on in the world’s second-largest economy, so keeping abreast of what happens there is important.


And even though most of the decisions at what is effectively Asia’s largest political pantomime are pre-determined, it’s still worth having a think about some of the big economic priorities for China’s leaders.


Especially in a year when the Communist Party is trying to assure its citizens and the world that it is in control of its economic destiny.



So here are four things I’ll be watching at the NPC:


13th five-year plan: Although details of the plan have actually been around since November, delegates will get a chance to vote on it during the NPC. Don’t forget this is all pre-scripted so no-one actually votes against the strategy. High up on the agenda will be cutting industrial over-capacity and high debt levels. The reform of state owned enterprises will also be in the spotlight – but more on that later. Basically the five-year plan is China’s vision for itself as it tries to manage the transition from an investment-driven economy into one that’s more dependent on services and consumption.


Economic growth target: Don’t look at the target, says Tony Nash of Complete Intelligence. Look at the direction in which the country’s growth target is heading and at what pace. That’s far more useful than the actual number. We all know China’s growth is slowing down – it clocked the lowest growth figure in 25 years (6.9%) recently. But what will be important to look at is the make-up of GDP – are services becoming an increasingly important part of the economy, and if so what does that mean for job-growth?


Zombie firms: Also known as the “walking dead” these massively debt-laden state-owned firms will be in focus as China looks to clean up the sector. The problem is what to do with the millions of Chinese factory workers who are employed in some of the country’s biggest companies. There were reports out earlier this week about 5-6 million jobs would be cut from state-owned enterprises. So expect big support packages, workforce training programmes and a commitment to create new jobs in new sectors.


Stimulus measures: Markets in China have been rallying this week ahead of the NPC in anticipation that the government will announce further stimulus plans. The stock market in particular has been battered by the slowdown in the economy, but the financial sector has also benefited from billions of dollars being poured into the system. Fraser Howie, China watcher and co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise”, says it’s clear “there are aspects of the economy that are clearly out of control – the stock market, and the currency. They’re trying to get in control of those things by clamping down on activity – but not embracing the free market which they promised.”


So in a nutshell – a lot of long and possibly boring speeches – but some key points to look out for which will give us an indication of where China’s economy is heading over the next five years. Well, that’s if it all goes to plan at least…