The uneven patterns of slowing growth in China's economy illustrate its weaknesses: Over-reliance on low-end exports that has exposed economic expansion to Europe's debt crisis, and a continuing need for government-driven, fixed-asset investment to stabilize the situation.
Economists have been calling for years for a re-balancing away from these twin economic drivers toward more household spending and higher-tech manufacturing. Yet growth in retail sales has slowed from last year's growth levels, sitting now at 14.1 per cent after the first three quarters.
"For a country like this, business cycle problems are important but they are not as important as solving structural problems," said Li Wei, an economist and professor at Beijing's Cheung Kong Graduate School of Business, who argues that China, despite its status as the world's second-largest economy, is still at best a middle-income, developing nation.
Among China's biggest economic challenges, he said, are a difficult financing environment for small to medium-sized enterprises in an economy dominated by large state-owned enterprises, and an aging and shrinking work force whose skills do not match the jobs available, leaving college graduates unable to find work even as the factory belt struggles to fill positions. "Resolving business cycle problems are not what will allow China to grow sustainably in the long run," he said.
Economists once warned that China's growth could not dip below 8 per cent for fear it would spark high unemployment and unrest. But on Thursday, Beijing reported that growth slipped in the third quarter to 7.4 per cent, the slowest pace since early 2009, bringing expansion in gross domestic product to 7.7 per cent so far this year.
Yet a raft of government data released Thursday showed China's working population is, for the most part, holding its own. The average disposable income of urban households has climbed 13 per cent so far this year compared to the same period last year, or 9.8 per cent when adjusted for inflation; rural incomes are up 15.4 per cent. The number of migrant workers streaming into cities from the countryside is still increasing despite the country's falling birth rate, up 3 per cent to bring their work force total to 168.67 million, perhaps encouraged by word of labour shortages in some southern factories.
The numbers were proudly listed off by a government official this week as evidence that China's economy, while weakened, is not doing as badly as other data suggest. "All these very positive changes can tell you progress is being made, thanks to the policies of the central government, to maintain steady growth and adjust the economic structure," said Sheng Laiyun, a spokesman for the National Bureau of Statistics of China.
That is not to say the news was good. This was China's seventh-consecutive quarter of slowing, though it remained slightly above the government's official year-end target of 7.5 per cent. The numbers reflect the draft felt in falling global commodity prices and profits for companies ranging from luxury clothing makers to heavy equipment manufacturers; firms as diverse as Burberry, Coca-Cola and Caterpillar have all warned of falling profits because of the China slowdown.
This was the last major data release before next month's 18th Communist Party Congress, which should end in public confirmation of the already anointed successors to President Hu Jintao and Premier Wen Jiabao. Given that transition, Chinese policy makers are unlikely to do anything more than fiddle with interest rates and banks' reserve ratios, and perhaps add some cash injections to the money market to gently encourage the economy in coming weeks.
"This is far worse than most had anticipated at the start of 2012," said Mark Williams, chief Asia economist at Capital Economics. "But it is not a hard landing in the terms that matter to China's policy makers. Slower growth does not appear to be generating significant job losses. Fears that sub-8-per-cent growth might trigger social unrest have not materialized." Indeed, forthcoming data are likely to suggest households are clawing back some lost ground, with their incomes expanding faster than the economy, a reversal of the long-standing trend, Mr. Williams added.