Why China’s slowing growth isn’t too much of a worry

Chinese economic growth is slowing, but numbers last night weren’t quite as disappointing as anticipated and still point to steady growth.

Fourth quarter GDP slowed from 7.8 per cent to 7.7. per cent - the lowest it's been for 14 years, but above market forecasts of a fall to 7.6 per cent.

Industrial production in December came in at 9.7 per cent, slowing from 10 per cent in November.

Chinese authorities have been trying to pull away from dependence on investment, and fixed investment growth did slow in December, registering 19.6 per cent for 2013 as a whole - down from 20.6 per cent for 2012.

The data has, to some extent, allayed concerns that fiscal tightening would cause a stronger pullback, and the economy looks a touch more robust than many had thought.

Berenberg's Rob Wood points out that China has weathered tapering-related turbulence in other emerging markets, offset weak Western demand for exports and managed to introduce measures to deflate credit bubbles without causing too much volatility.

And gradual economic reform, he says, should support domestic demand as well as raising the country's contribution to global demand, in spite of a slowing growth rate.

The government seems ready to accept lower rates of GDP growth as long as that growth is sustainable and does not cause politically dangerous mass unemployment.

Chinese GDP growth should gradually slow further over the next two years as the reforms continue, but that should still leave it expanding at a rapid clip of more than seven per cent year-on-year.

The risk of a hard landing, Wood adds, remains low. The government has the tools to avoid it - with $3.8 trillion of foreign exchange reserves, it’s not reliant on hot money inflows, and low inflation continues to give freedom for maneouvre.

Most Asian markets were in the red during Monday trading, with the Shanghai Composite falling 0.8 per cent (meaning it hit a five-and-a-half-year low) and the Nikkei down 0.6 per cent.