No more cheap labor? China’s growth at risk

China’s growth rebound may be capped by a labor-force squeeze and shrinking resources that leave the government satisfied with rates of expansion as low as half the peak during the past decade.

A pace of 7 percent to 8 percent reflects economic forces, Ma Jiantang, head of the National Bureau of Statistics, said on Jan. 18 after reporting 7.9 percent expansion in the fourth quarter from a year earlier. He said a decline last year in the working-age population was of “great importance.”

Ma’s comments bolster the contention that China’s economy is permanently downshifting a gear as its one-child policy drives down the labor force. Slower growth presents challenges for incoming leaders Xi Jinping and Li Keqiang, and may limit the country’s potential as a market for everything from Australian iron ore to German machinery.

“A declining labor force is just one of several economic headwinds looming on the horizon,” said David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department, now an Asia analyst in Los Angeles at TCW Group Inc. “As Xi and Li assemble their economic teams, we’ll find out whether necessity will again be the mother of reforms, as it has been in the past.”

Fourth-quarter growth, while exceeding the median analyst estimate, brought 2012 expansion to 7.8 percent, the weakest pace since 1999. China stepped up infrastructure spending to reverse a seven-quarter slowdown, with fixed-asset investment excluding rural areas rising an inflation-adjusted 19.3 percent, compared with 16.1 percent in 2011, according to JPMorgan Chase & Co.


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