Risks of investment-driven expansion worry analysts

A customer chooses decorations for the Lunar New Year, which starts on Jan 31, at a supermarket in Suzhou, Jiangsu province. Consumption contributed 50 percent to GDP growth in 2013, 1.8 percentage points lower than in 2012. Wang Jiankang / For China Daily

Although 2013 turned out better than expected in many ways, risks still overhang the Chinese economy, with analysts warning that investment-driven growth can't be sustained indefinitely.

The world's second-largest economy expanded 7.7 percent in 2013, exceeding the official target of 7.5 percent and coming in slightly above market expectations, the National Bureau of Statistics announced on Monday.

Ma Jiantang, the bureau chief, said investment was the chief driver of the economy, accounting for 54.4 percent of overall growth - 4 percentage points more than in 2012.

Despite many efforts to boost spending, consumption's contribution to GDP growth dropped by 1.8 percentage points from the previous year, to 50 percent.

The contribution of net exports to overall GDP growth was a negative 4.4 percent.

"GDP growing 7.7 percent has brought more concern than joy, because last year's rise was still largely driven by investment," said Li Xunlei, chief economist of Haitong Securities Co.

Li said that investment-driven growth has resulted in rapid expansion in local government and corporate debt, heightening risk without generating adequate cash flow.

He said deleveraging will remain a major task for China in 2014, and that may lead to slower GDP growth of 7 to 7.2 percent.

The government has already taken steps to curb investment, with the NBS figures showing a slowdown in fourth-quarter GDP growth that was mainly due to declining public investment.

"Growth in fixed investment is at decade lows as Beijing tries to steer the economy away from investment-led growth," said Fred Gibson, an associate economist at Moody's Analytics.

"We're likely to see a continuation of slower but more sustainable investment growth in 2014 as policymakers focus on rebalancing the economy to domestic consumption."

Tang Jianwei, a senior macroeconomic analyst at Bank of Communications Ltd, said the fallback in investment was mainly a result of mounting government debt pressure and worsening excess industrial capacity.

Tang said that slowing growth in public investment is likely to continue in 2014, but market-oriented reforms will unleash the potential of private investment, especially in the service sector, meaning steady growth in investment this year of about 19.3 percent.

Ma Jun, the chief economist for Deutsche Bank's Greater China Region, said steady investment growth this year will benefit sectors such as ports and shipping, textiles and electronics, and formerly restricted sectors such as medical care, renewable energy, railways and the Internet.

"Although we've been emphasizing the importance of consumption-driven growth, it's undeniable that investment will remain the major economic driver for a while, and the economic structure will be largely unchanged in 2014," said Zhu Baoliang, a senior economist with the State Information Center, a government think tank.