China enters slow-growth era

One of the major debates surrounding China's third quarter GDP figures was whether they signaled the beginning of a "new normal" for China.

Julian Evans-Pritchard, China economist based in Singapore of the leading independent macroeconomics consultancy Capital Economics, believes it is evidence of a fundamental shift.

"I think what is happening is quite significant. If you look at the crackdown on shadow banking and the passing of budget laws to control local government spending, there has been a real shift in policy. The one disappointing area has been financial reform but you can still see the direction of policy.

"Even if there was to be a rebound in the fourth quarter, I think you can see the way things are going. A lot of the reforms that are going to be needed are going to result in slower growth, at least in the short term."

Zhu at the Shanghai Advanced Institute of Finance wonders whether the government is as relaxed about slowing growth as it may superficially appear.

He believes GDP growth might have slowed in the current quarter as a result of certain stimulus measures, particularly increasing liquidity, not producing a fillip in time.

"The slowing growth could be a result of the policy not working. We might see another run of big stimulus measures to try and make the year's growth target. The government would have to pull a lot of rabbits out of the hat to do this since we would need 7.7 percent in the fourth quarter to make 7.5 percent for the year," he says.

Oliver Barron, head of the Beijing research office of London-based investment bank, NSBO, who is based in Beijing, disagrees.

He believes that because employment levels have not been affected, the government has become more relaxed about slowing growth.

Unemployment has remained steady this year at around 4 percent, partly helped by a continued long-term decline in the working population as a result of the country's one-child policy. In the first nine months of the year, more than 10 million jobs were added in urban areas, meeting the full year's target well ahead of time.

"I think policymakers are now okay with slowing growth because employment continues to remain stable and I think as long as that remains the case the government will be willing to tolerate a further slowdown.

"The National Bureau of Statistics, on their own commentary on the data, said that employment remained a positive surprise. I think this all increases the likelihood of a target of 7 percent being set next year."

Barron also believes that the weak property data also means that there is unlikely to be a rebound in the fourth quarter. Real estate investment rose 12.5 percent in the first three quarters compared to 13.2 percent in the first eight months of last year. Housing sales, however, fell 10.8 percent in the first nine months compared to a year ago.

"I think this is all well set in now and it is unlikely there will be a rebound in the latter half of the year," he says.

Kuijs at Royal Bank of Scotland also believes the situation with the housing market reveals that policymakers are not likely to come up with some emergency response just to boost growth.

"China is now undergoing its first market-led downturn in the real estate market and there has been no significant policy response. I think if we had something similar five years ago they would have acted. I think from this you get some indication that policymakers are allowing growth to fall below 7.5 percent."