Small price, big benefit

The latest government statistics were not ambiguous about the economy's performance in the third quarter. The nation's GDP growth slowed to its lowest rate in more than five years.

So far in 2014, China has seen GDP grow, year-on-year, 7.4 percent in the first quarter, 7.5 percent in the second and 7.3 percent in the third. It will probably miss, albeit by a small margin, its annual growth target of 7.5 percent.

A slowdown in growth, of course, would not be good news for those seeking short-term returns, judging from all the signs in the market.

Nor is the slowdown surprising, as seen from the long-term perspective. It is part of a process of trade-offs, with their inevitable pains, that the economy must go through to shed outdated, less-productive capacity and make room for new and more creative business initiatives.

It is a process that Premier Li Keqiang likes to compare to a warrior cutting off his own wounded arm so he can continue fighting.

This sort of transition, the subject of economics talk for a long time, begins to make genuine progress only when the necessary price is paid — and that is happening now.

Economists can predict, from all the factors contributing to the third quarter's slowdown, a number of changes that, however uncomfortable they may be now, will improve, rather than drag down, growth in the future.

First, all government offices, especially those at local levels, are more prudent in their fiscal planning and more responsible for the consequences of their financial decisions, as amendments to laws and policies require. Since local governments have already incurred a formidable amount of debt from previous investment sprees, it is about time they were told to go slow.

Second, trimming the local governments' investment activities has helped the financial system focus resources on the more worthy projects.

Third, the growth in services (7.9 percent in the third quarter) is strong compared with that of industry (7.4 percent), and it may become even more robust as the transition continues thanks to the cooling of the government's investment enthusiasm.

Fourth — and of particular importance — there has been a noticeable pause in new land-development projects and a reduction in the once widespread demand for new, and ever more expensive, housing units.

All of these factors are likely to protect the economy's health and growth potential in the long run. China has earned that benefit by paying the very small price of 0.2 percentage points in its quarterly GDP results.