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By HaleStewart March 26, 2014 9:09 am
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The Progress of Chinese Rebalancing in Perspective; A Work in Progress

Over the last 12-18 months, it has become obvious that China is seeking to change the content of its economic growth, shifting from a model dependent on exports to one more focused on domestic demand.  At the same time, the economy is also growing at a slower rate, largely because it has changed from a third world rapid growth model to a more fully developed economy.  Let's take a look at some of the statistics that highlight these changes.

Above is a chart of the quarterly rate of annual Chinese GDP growth.  After the recession there's a very strong move higher to over 10%, largely because of the huge stimulus program initiated and implemented by the government.  But since that time, growth has decreased to the upper 7s.

The above chart places historical GDP growth into a longer perspective.  At the turn of the century, the annual rate was coming in around 6%-8%.  That rate increased before the great recession, with the data series printing over 12% in some situations.  But since then the numbers have steadily decreased, settling in to a range between 7.5% and 8%.

The current account chart shows that China is indeed makinig the transition from export dominated economy to one less relying on international trade; the current account as a percentage of GDP has been decreasing since 2008 falling from a high of 10.1% to the most recent reading of 2.3%.

The reason for the narrowing of the current account is the slowdown in Chinese exports.  The level of which has been nearly steady for the last two years.

But retail sales -- which had been growing over 13% YOY, have recently dropped to 11.8%.  While this rate is still strong, it indicates the Chinese consumer may be holding back.

The month over month percentage change in retail sales shows the slowdown in more detail.  While it's only three months of data and therefore too little to call a trend, it's still something to keep an eye on.

The overall slowdown in exports could just as easily be a function of the slow growth environment in the US and EU.  And the lower retail sales readings could be heavily influenced by the annual slowdown associated with the Chinese new year.  But neither of those factors completely explains the slowdown in annual GDP growth, which is more a function of the changing stature of China's economy, which is part of its longer term trend.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer




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