Slowing China aids global economic rebalancing

Mon Mar 5, 2012 12:42pm EST
 
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By Alan Wheatley, Global Economics Correspondent

LONDON (Reuters) - China's acceptance of a slower rate of growth rattled markets on Monday, but it also shows that the gradual rebalancing of the global economy long sought by world leaders is on track.

Oil, copper and equities all fell after Premier Wen Jiabao, in his annual state-of-the nation report to China's parliament, penciled in growth for 2012 of 7.5 percent. That would be the slowest pace of expansion since 1990 and well down on last year's 9.2 percent growth rate.

But ditching the 8 percent reference rate for growth set in the previous eight years is more about managing expectations than reflecting a serious lack of confidence in the economy's prospects, said Steve Tsang, director of the China Policy Institute at Britain's Nottingham University.

"The Chinese government and economists outside China have been saying the economy needs rebalancing. It's blatantly obvious. Well, if you're serious about rebalancing you'd expect growth to slow down a bit," he said.

Tsang and others said the 7.5 percent figure should be viewed as a point of reference rather than a forecast. After all, the ruling Communist Party, which manages to hit most of its goals, has consistently overshot its annual growth "target" in recent years.

Nor should the signaling function in Wen's speech have come as a surprise.

The lower target envisaged is consistent with the expected slowing of potential growth based on higher labor costs and falling investment returns, according to Li-Gang Liu and Hao Zhou, economists at ANZ in Hong Kong.

Indeed, the party's five-year plan for 2011-2015, released a year ago, was based on an even lower growth rate of 7 percent, shifting down from the annual pace of almost 10 percent enjoyed in the first 30 years of China's embrace of a semi-market economy.   Continued...

 
Chinese Premier Wen Jiabao speaks during the 4th China-Arab Business Conference in Sharjah January 18, 2012.  REUTERS/Jumana El Heloueh