China GDP growth hits 5-year low

Sheng Laiyun, spokesman of China's National Bureau of Statistics (NBS), speaks at a press conference in Beijing, capital of China, Oct. 21, 2014. The gross domestic product expanded 7.3 percent from a year ago in the third quarter, compared with 7.5 percent in the second quarter and 7.4 percent in the first quarter of this year, the NBS data showed on Tuesday. (Xinhua/Shen Bohan)

China's economy expanded at a slower pace in the third quarter of this year, but still remained within the "reasonable range" set by policymakers, said the National Bureau of Statistics (NBS) on Tuesday.

Gross domestic product (GDP) expanded 7.3 percent from a year ago in the third quarter, compared with 7.5 percent in the second quarter and 7.4 percent in the first quarter of this year, the NBS data showed.

The GDP growth in the July-September period marked the slowest quarterly growth since the first quarter of 2009 and was in line with market expectations.

MEDIUM-SPEED GROWTH

On a quarterly basis, GDP in the third quarter was 1.9 percent larger than that in the April-June period, according to the NBS.

For the first nine months, the GDP rose 7.4 percent year on year to reach 42 trillion yuan (6.84 trillion U.S. dollars).

Kuang Xianming, director of the Research Center for Economy at the China Institute for Reform and Development, said the country has entered an era of medium-speed growth between 7 percent and 8 percent.

"The challenge for the Chinese economy is not about the speed, but about the structure," Kuang said, adding the current growth rate suits China as it pushes for reforms.

"We need to grasp the good times of medium-speed growth to realize breakthroughs in key reforms," he said.

Apart from the GDP growth rate, policymakers consider new jobs and the consumer price index (CPI) to be the most important indicators for judging whether the economy has slid out of the "reasonable range," a phrase first used by Premier Li Keqiang in November 2013.

More than 10 million new jobs were created in the first nine months, a figure that beat the government's full-year target, while a CPI increase of 2.1 percent was lower than the government's full-year inflation control target of 3.5 percent.

"In general, the economy has maintained steady development momentum in the first three quarters, but the environment at home and abroad remains complex," NBS spokesman Sheng Laiyun said at a press conference, citing challenges ahead.

Calling the slower growth a "new normal" and a "hard-won result," Sheng said China will keep its macro policies stable but consider fine-tuning when appropriate to ensure steady and healthy economic growth.

He attributed the economic slowdown to short-term pains from cutting overcapacity and the downturn of the property market.

The NBS spokesman saw progress in restructuring the economy in the first three quarters and improving energy efficiency, with the service industry accounting for 46.7 percent of GDP, 1.2 percentage points higher than the same period last year.

Retail consumption contributed 48.5 percent of growth in the period, 2.7 percentage points more than last year and 7 percentage points more than the contribution by investment.

Per-capita household disposable income outpaced GDP growth in the January-September period, increasing 8.2 percent in real terms year on year while inflation stood at relatively low levels, according to the NBS.

The income gap between urban and rural households also narrowed in the period as rural households registered real growth of 9.7 percent in per-capita cash income, compared with an increase of 6.9 percent in disposable income in real terms for their urban peers.

GDP TARGET

China's third quarter results were taken positively by markets, as the Australian dollar and other "risk-on" rose following the release of the results, according to Moody's Analytics.

Nomura Securities also found the industrial production in September encouraging. Among all the indexes, industrial production has the strongest bearing on GDP growth.

The industrial output rose 8 percent year on year in September, 1.1 percentage points higher than in August.

"This bodes well for an economic recovery this quarter," Nomura said in its latest research note, adding the government has succeeded in stabilizing growth

Nomura kept its forecast of China's GDP growth of 7.6 percent in the fourth quarter and 7.4 percent for 2014.

Chinese policymakers have hinted repeatedly in recent months that the government eyes a full-year GDP growth target of "around 7.5 percent" for 2014, vague wording that allows room for deepened reforms amid slower growth.

When visiting Germany earlier this month, Premier Li Keqiang said a pace around the 7.5-percent target -- whether slightly higher or lower -- will be acceptable as long as employment is guaranteed, household income raised and quality and efficiency of the economy improved,

The premier said China has the conditions and capability to achieve economic growth this year and keep the growth rate within a "reasonable range.

Shen Jianguang, chief economist at Mizuho Securities, said policymakers have reached consensus on tolerating slower growth in exchange for reforms.

"Growth of 7.5 percent is not an absolute target," Shen said, though he warned that it's too early for China to abolish the GDP growth target because of its continuing role in guiding local governments.

"If the government stops giving a target next year, it will cause chaos in expectations or government inaction, thus jeopardizing a good environment for pushing reforms," Shen said.

He said a clear bottom line of GDP growth next year could satisfy both sides -- giving maximum space for reform without frequent policy fluctuations, while still guiding government at all levels.