China's Transition: Five Charts Showing Domestic Drivers Are Taking Over
China's data deluge this week showed the slowest annual economic expansion since 1990. To the glass-half-full observer, there was increasing evidence of a shift away from over-reliance on debt-fueled investment for growth towards consumption and innovation-driven expansion.
Here are five charts suggesting the journey to a more balanced China is underway:
1) Surging services. Services industries' 48.2 percent contribution to GDP last year was a record since China began its modernization in the late 1970s. Services expanded 8.1 percent last year, outpacing the 7.3 percent growth of secondary industries such as manufacturing and construction and 4.1 percent for primary industries of agriculture and mining.
2) Fatter wallets. While wages growth is coming off peaks, relative to inflation the average Chinese worker is doing better even as the economy slows. Disposable income rose a nominal 10.1 percent, outpacing the economy's 8.2 percent nominal expansion last year. That means "the average household is enjoying an increasing share of the dividends from growth," said Julian Evans-Pritchard, a Singapore-based economist at Capital Economics Ltd.
3) Consumers outpace industry. Retail sales continued to outpace industrial production in 2014, expanding 3.7 percentage points faster at 12 percent. "A quite clear sign of rebalancing in my view," said Jim O'Neill, the former Goldman Sachs Group Inc. chief economist who coined the BRIC acronym. Online retail sales surged 49.7 percent, increasing its share of the total to 10.6 percent.
4) Markets over Mao. Private companies outperformed state enterprises, a trend Nicholas Lardy of the Peterson Institute wrote about last year, saying they are now firmly in the driver's seat of China's economic future. Fixed-asset investment by private enterprises rose more than 18 percent in 2014, accounting for 64.1 percent of the total, while state entities increased their investments 13 percent.
5) New eclipses old. The shift to more innovation-led growth is led by companies including Shenzhen-based Tencent Holdings Ltd., best-known for its WeChat messaging application. The contrast with old-economy stalwarts such as Aluminum Corp. of China underscore the shift. And then there's Alibaba Group Holdings Ltd., which has vaulted into the world's 20 biggest listed companies after its IPO in September.