Sinarmas World Academy Jakarta, Indonesia Commentary Cover Sheet Title Of Extract : China Economic Growth Lower than Forecast Source of Extract : “China Economic Growth Lower than Forecast.” BBC News. BBC, 15 Apr. 2013. Web. 05 May 2013. <http://www.bbc.co.uk/news/business-22148991>. Date of Extract : 15 April 2013 Word Count : 747 Words Date of Submission : Monday 20th May, 2013 Name : Nicholas Koesnadi China economic growth lower than forecast China's new leaders have vowed to boost growth and make it more inclusive China's economy, the world's second-largest, has slowed and performed worse than many analysts expected in the first three months of the year. Annual growth was 7.7% in the January to March quarter, compared with 7.9% in the previous three months. Analysts had forecast a figure closer to 8%. China wants to spur growth after it hit a 13-year low in 2012. Other key data on Monday also came in lower than market expectations, raising questions over the outlook for growth. Industrial output rose 8.9% in March from a year earlier, much lower than analysts' targets of 10%. Meanwhile, fixed asset investment, a key driver of China's growth, rose at an annual rate 20.9% in the first three months of year. Analysts had expected growth of more than 21%. "The Chinese economy is showing soft growth momentum in the first quarter," said Wei Yao of Societe Generale. "All these figures showed that the economy is in a weak recovery." 'Not a bad thing' Over the past few years, China has relied heavily on its exports and investment spending to maintain a strong pace of growth. However, as economic growth in its key markets such as the US and Europe has slowed, and its exports have weakened, there have been calls for China to rebalance its economy. Beijing has acknowledged this and has indicated that it wants to increase domestic demand to reduce its dependence on exports and achieve more sustainable growth. At the same time, China has had to deal with a widening wealth gap, which has prompted fears of social unrest in the country. There have been calls for the new leadership, which took charge in March, to work towards a more inclusive growth model. Analysts said a slower rate of growth may actually help China, as it tries to achieve those goals. "Given Beijing's goal of restructuring the economy, a relatively moderate economic growth is not a bad thing in the longer term," said Ms Yao of Societe Generale. She added that this "could help policymakers focus more on the quality rather than speed of the economy". Accommodative policy China has taken various steps over the past few months to spur growth. The central bank has cut interest rates twice since June to reduce borrowing costs for businesses and consumers and increase lending. Beijing has also approved infrastructure projects worth more than $150bn (£94bn). A slowdown in exports has added to calls for China to restructure its growth model Analysts said China was likely to continue to use easy monetary policies as a tool to sustain growth, and would not raise rates or look to limit access to capital. "Certainly with this number, policy certainly would not tighten and would continue to be quite accommodative," said Tao Wang, an economist with UBS. However, some analysts warned against any further aggressive easing measures, adding that such measures may promote asset bubbles and overheat the economy. "Another year of propped-up growth via state spending and a credit deluge would, we fear, push China dangerously close to proving Wen Jiabao correct - that the current economic model is 'unsustainable'," said Alistair Thronton, senior China economist at IHS Global Insight. "If something is unsustainable, at some point, it won't be sustained.” Commentary China, a country with a communist government but with a capitalist economy, have grown tremendously fast over the past few decades. In the last decade alone, China’s economy grew 7 times faster than the US (Business Insider). It is a country with the largest population in the world and the second largest economy. Today, many major world companies are opening their plants in China due to the low wages. China seems to be a haven for investors and manufacturing companies. However, this rapid growth have created some kind of bubble that could burst anytime. It can be seen that currently China is facing a slower than expected performance in the economy growth sector. The economy growth in the first 3 months of 2013 are slower than analysts prediction (BBC News). Since China opens its doors to international trading and foreign investors, the economic growth is like nothing the world have ever seen before. Today, countless technologies, equipments, appliances, and many other things are now made in China due to the considerably cheap labor. Numerous companies are opening their manufacturing plants in China, boosting the income for the local society, thus reducing the number of jobless people and increases the economic growth. In addition, investors investing their money in China are also a big advantage for the economic growth. A fact of the matter is, 8 out of 10 largest stocks on the Shanghai Stock Exchange are from state-controlled companies, this means that when people buy those stocks, they are indirectly investing on the Chinese government. Over the years, all these factors lead to a spectacular economic development that changed China. One may debate that China’s economic growth rests on the nation’s exports with Europe and the United States as the key market. Meanwhile, the domestic market growth is not as strong as the export market, creating some kind of an imbalance. This wouldn’t be a problem if the key market’s rate of consumption is stable or increasing. However, recently Europe and America are facing a decline in market growth. China is starting to realize that it can no longer depend on exports as its income. There must be a balance between the domestic market and the international market. In addition to this problem, the social gap between the rich and the poor are getting ever wider, increasing the fear for a social unrest. This wide gap made China’s GDP Per-capita the 91st lowest in the world, below Bosnia & Herzegovina (Based on 2010 data). This is due to the large amount of people living below the standards created by those wide social gaps. When China first open its doors to the international market, its GDP per-capita in 1978 was 226 USD, now, it is around 6000 USD. The growth in GDP Per capita is due to the rapid development of the economy. However, one may argue that an increase of 5700 USD in 36 years, for a country with 7 times more economic development than the US must have a higher GDP Per-capita. The fact of the matter is, although China’s income is considered on of the biggest in the world, the large social gap between the rich and the poor lowered the GDP Per-capita. Analysts said that the decreasing growth of the economy is a positive thing for China because it gave them time to improve these issues. There are also some other important issues that needs to be addressed as soon as possible, which is the Chinese housing bubble. It is quite similar to the US housing bubble. The continuous rise in property prices made developers constantly building new condos, houses, malls, with no consumers. The supply is growing too fast compared to what the consumer needs. This problem is worsened by people who buy houses with loans from the banks, without a possibility for them to be able to pay their debts. This is a time bomb awaiting detonation. Above: History of interest rates between Chinese Yuan (CNY) to USD from investing.money.msn.com. Beijing addressed this problem by taking various steps. One of them is to reduce the interest rates twice, thus reducing the borrowing costs for businesses and consumers. There are also plans to improve the nation's infrastructure. According to the BBC News, Beijing approved around $150 billion to be used for those infrastructure projects. Nonetheless, some economists said that China must take careful steps in addressing the nations economic problems. There is no room for error because it can overheat the economy, popping the bubbles, therefore putting the stability and integrity of China’s economy in jeopardy. Works Cited “China Economic Growth Lower than Forecast.” BBC News. BBC, 15 Apr. 2013. Web. 05 May 2013. <http://www.bbc.co.uk/news/business22148991>. “China’s Big Economic Bubble: 5 Reasons It’s Sure to Burst.” International Business Times. N.p., 18 Aug. 2011. Web. 05 May 2013. <http://www.ibtimes.com/chinasbigeconomicbubble5reasonsitssureburst834911>. “17 Facts About China That Will Blow Your Mind.” Business Insider. N.p., 22 Dec. 2010. Web. 05 May 2013. <http://www.businessinsider.com/amazingfactsaboutchina201012>. “China Property Prices Climb as Cities Defy Government Policies to Cool Housing market.” Financial Post Business China Property Prices Climb as Cities Defy Government Policies to Cool Housingmarket Comments. N.p., 16 Apr. 2013. Web. 05 May 2013. <http://business.financialpost.com/2013/04/16/chinapropertypricesclimbascitiesdefygovernmentpoliciestoc oolhousingmarket/>.