What Does China’s 7% Growth Rate Mean To The Rest Of The World?

The author is ANZ (The Australia and New Zealand Banking Group) Research

China’s growth rate has started to decelerate since 2012, slowing to below 8% for the last six consecutive quarters.

We believe the new government will likely engineer a growth rate in the range of 7% to 8% up to 2015, and around 6.5% from 2016-2020.

Although China’s GDP growth rate is expected to trend down going forward, the extra GDP added each year is still sizable. China will remain an important contributor to world growth.

Structural reforms suggest that domestic consumption will play a more central role going forward. Urbanization will continue to drive demand for resources. Environmental concerns suggest that China will become a big importer of natural gas.

Meanwhile, China’s outbound tourism is still underdeveloped and investment is set to grow rapidly under fast liberalization of the capital account.

We expect the official PMI to remain unchanged at 51.1 in October. The steel output remained high, reflecting solid demand in housing and automobile sectors.

China’s money market rates jumped in recent days, reflecting tight liquidity conditions. The People’s Bank of China seems to be maintaining a tightening bias, but we believe that the "cash crunch" is unlikely to be repeated again.

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