But even as the country's leaders prepared for a once-every-five-years transition, they still managed to pull many levers to aid the economy, led by a robust stimulus package focused on infrastructure investments. In response, the Chinese economy managed to grow at a 7.9% annual pace in the fourth quarter of 2012, up from 7.4% in the previous quarter. Although the economic statistics that the Chinese government releases are notoriously unreliable, many private economists concede that the economy turned the corner late in the year.
Exports or domestic consumption?
Economists now expect the Chinese economy to grow roughly 8% in 2013, though growth is likely to be moderate in 2014 and beyond to the 5-7% range as the era of ever-expanding exports finally winds down. To be sure, Europe and the United States, which still absorb more than 50% of all Chinese exports, will probably look healthier into the mid-decade. But China is slowly losing its competitive edge in exports as its currency strengthens, the seemingly endless supply of fresh (and inexpensive) labor starts to dry up and neighboring low-cost Asian nations build a head of steam in their export efforts.
As a result, China will need to look inward for growth. This means it will have to generate sustained growth in consumer spending. In a bullish sign for consumer spending, Chinese home prices are finally rising again after a two-year slide, and that should boost confidence among consumers.
And consumers do indeed appear to be in a spending mood. Retail sales rose 15.2% in December 2012 compared with a year earlier. That's up from the 14.9% rate posted in November 2012 and the highest reading since March 2012.
It's helpful to keep making the analogy to the U.S. economy in the 1950s. Heavy infrastructure investments such as the U.S. interstate highway system fed a robust economic expansion in many regions and many workers moved up from lower-income jobs to middle-income jobs, setting off a spending boom. That same trend, though already underway in China, should continue for many years to come.
Today, at 11:20 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for July 28th, 2014 | John Ransom