Signs of Rebalancing Seen Even with the Slow Economic Growth

Signs of Rebalancing Seen Even with the Slow Economic GrowthThe country’s economy grew at its weakest pace in the third quarter in the six and the half years, but beyond the headline number as experts are seeing signs of rebalancing. The Gross Domestic Product for the third quarter beat market expectations slightly and expanded by 6.9 percent. A quarter on quarter report showed that the economy grew by 1.8 percent which is unchanged from the second quarter. But the expansion is at its weakest since the first quarter of 2009 attributing to the slowdown to weak external demand and a reduction in inventory in traditional industries such as cement and steel.

Rebalancing is evident and traditional growth engines are sputtering, services and consumption are holding up which offset the slack. Industrial output in September slowed down even further to 5.7 percent from 6.1 percent in August, and fixed asset investment growth a key driver in the economy fell even further to 10.3 percent in the first nine months. Real estate investment as a drag on the economy slowing down to 2.6 percent for the first nine months, down from 12.5 percent compared to the same period last year. For the first time service industries comprised than half of the GDP, 1-.8 percentage points ahead of manufacturing.

From January until September, consumption spending contributed 58.4 percent of growth compared with 49.1 percent a year ago. Meanwhile retail sales strengthen from 10.5 percent in July to 10.9 percent in September. Forces that prop up the economy and drag down have reached a new equilibrium and the propping up forces also includes ongoing industrialization and urbanization. The Chinese economy is indeed running smoothly as the government is providing adequate employment and its goal in achieving a 7 percent annual growth avoided a hard landing due to a resilient service sector that shrugged off the stock market crash and continued to offset weakness in the industry.

Economists noted that the growth avoided a hard landing expects a two speed economy phenomenon that will continue in the service sector growth continues to out perform the manufacturing sector. The manufacturing slowdown is the big problem for the Chinese economy in the near term. Economists stated a accelerated loan growth as evidence that the economic expansion will stabilize in the coming months. Economists also expect the central bank to cut interest rates by 25 basis points and to lower the reserve requirement ratio by 50 to 100 percent before the year ends.

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