A bet, a joke and China's economic 'new normal'(2)

Xiaomi Inc. outshined its rivals and became the world's number five smartphone supplier. "The success of China's Xiaomi is nothing but phenomenal," U.S.-based magazine Forbes said, when naming Lei "Asia's 2014 Businessman of the Year."

With huge achievements and continued momentum, Lei may soon be able to collect on the bet.

Also in 2014, Internet financial products like Yu'ebao, introduced by Jack Ma's financial company, continued to pound China's traditional banks and even helped push forward the country's financial reform. New businesses and new business models such as logistics, express delivery and e-commerce all developed extraordinarily quickly.

In contrast, this year witnessed a significant downturn in China's property sector, a key driver for the broader economy, which had been flourishing for the previous decade.

Weak market sentiment, low buyer confidence, sluggish sales, falling prices and rising inventory have all weighed on the industry's outlook.

The property downturn not only became the biggest drag on China's economic growth in 2014, but also hit land-dependent local governments hard, since land sales accounted for nearly half of their revenues.

"In the past, the Internet-based new economy was the 'concubine' of local governments, and we (developers) were their 'wife.' We used to sit and eat at the main table," joked Feng Lun, a Beijing-based investor and chairman of Vantone Holdings Co., on Dec. 14 at a forum in the southern Chinese resort city of Sanya.

"But now the seats have changed, and they (Internet companies) have replaced us. The only face-saving thing is that we are allowed to sit at a nearby table and watch them eat," Feng said.

NEW NORMAL

The Chinese economy slowed in 2014, no doubt about it. In the third quarter, it grew 7.3 percent year on year, the slowest quarterly growth since the first quarter of 2009.

The property downturn, industrial overcapacity, worrying local debt, and money-strapped small enterprises have all dragged on growth as China enters a new era, said Zhu Baoliang, an economist with the State Information Center, a government think tank.

The People's Bank of China (PBOC), the central bank, expects the economy to expand 7.4 percent in 2014, which would be the slowest pace since 1990 and below the government's target of about 7.5 percent. Many Chinese and global financial institutions have made the same bet.

In the 35 years between 1978 and 2013, annual growth of the Chinese economy averaged close to 10 percent and, between 2003 and 2007, it was over 11.5 percent.

However, the "good old days" had to end. Growth decelerated to 7.7 percent in 2012 and 2013, and in the first three quarters of 2014, growth was 7.4 percent.