China’s economic growth slowed to 7.7 per cent in 2013, the slowest since 1999, and just a little ahead of analyst expectations of 7.6 per cent.

Some economists are pointing to a further cool down in 2014, as indicators such as factory output and investment growth lagged in second half of the year. China is in the midst of reforming its economy, trying to shift to domestic consumption from exports and rein in public borrowing and risky credit.

'The old economic model does not work any more with state planning, state-owned enterprises, state banks, all this credit – they have to move towards a consumer economy' - China expert James McGregor

James McGregor, a journalist and businessman with more than 25 years experience in China, says the Chinese economy is undergoing a difficult transition and may have to let growth slow while it implements changes.

“The old economic model does not work any more with state planning, state-owned enterprises, state banks, all this credit – they have to move towards a consumer economy,” he said in an interview with CBC’s The Lang & O’Leary Exchange.

“At the same time they’re struggling not to let it slow down too much because the government’s only credibility is growth.”  

China's hot housing market

In 2013, there was a hot housing market in its most developed cities, with new home sales last year exceeded $1 trillion US for the first time.

Last March, former premier Wen Jiabao ordered higher down payments and interest rates for second-home loans in cities with “excessive fast” price gains including Beijing, Shenzhen, Guangzhou and Shanghai.

But new premier Li Keqiang hasn’t imposed any additional nationwide measures to cool the market and demand is exceeding supply as China’s middle class grows and with it the desire to own a home.

 The value of new homes sold in 2013 rose 27 per cent from 2012 to 6.8 trillion yuan ($1.1 trillion), the National Bureau of Statistics said in a statement today.

Concern over credit markets

The federal government has been concerned about excessive borrowing by local governments engaged in rapid development and has asked regulators to crack down on riskier lending.

At the same time, it is looking at fewer government controls on its banking system.

It is important to watch how China reforms its credit markets in 2014, McGregor said.

“When the global crisis happened, China came to the conclusion that the superior way is the Chinese model,” he said.

Like most other countries, including the U.S., China had an industrial policy that allowed it to grow up from almost nothing.

“The U.S. was built on industrial policy, but it only gets you so far,” McGregor said. “It got them through that period because that is where they are in their economic development.”

But now they will have to make tough decisions, he said.  “To get past this they have to change profoundly and it’s going to have to be a much more free-market economy.”

“They’ve got money saved but their debt is bad as the U.S. or worse – it’s just not as transparent.”

Growth and the environment

The growth of private investment cooled in 2013, by 1.3 percentage points from 2012, according to the National Bureau of Statistics.

China has had decades of double-digit economic growth that lifted millions of people out of poverty.

Its latest economic plan aims at boosting domestic consumption, so its manufacturing is not so reliant on world markets, which have been in a slump. Net exports were down 4.4 per cent in 2013.

It also wants to focus more on sustainable development and improving its environment, which McGregor called a “tight focus” for the central government.

“People are really fed up with [pollution], but this is a 10 and 15-year fix,” he said.