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China Economy: GDP Accelerates At End Of 2012

(c) Sky News 2013

China's economic growth has accelerated for the first time in two years, according to figures released by the country's government.

However, the 7.9% gross domestic product (GDP) rise in the fourth quarter (Q4) of 2012 masks a broader slowdown.

The year-long GDP figure - an expansion of 7.8% - represents the worst performance in 13 years.

The Q4 figure, released by the National Bureau of Statistics in Beijing, does suggest an encouraging turnaround for the world's second largest economy.

Retail sales in China were up 14. 3% and industrial output was up 10%, according to the government figures.

Fixed asset investment - a key indicator on infrastructure spending - was up 20.6% in 2012. A staggering £3.63trn was spent on infrastructure projects through 2012.

For the past two years, China's economy has been showing signs of a slowdown.

The Q4 turnaround is likely to gather pace for at least the next two quarters as the investment in infrastructure is rolled out. This will benefit the incoming Chinese leadership who take office in March.

However, the longer term direction of the Chinese economy is uncertain. The infrastructure stimulus will fade and when it does, a slowdown could return.

Analysis of the figures by economists will provide further detail on the accuracy of the data, as there is often mistrust of the Chinese government and its willingness to reveal accurate economic statistics.

The broader forecast for China is uncertain. Beijing is contending with a complicated conundrum. As it develops, it needs to move away from a legacy of producing cheap, low quality products.

The desire is to become a nation producing higher end goods and top-end technology.

To an extent, they already are. Huawei and Lenovo are two of the world's largest electronics firms and Chinese cars are selling very well in emerging markets, taking 10% of 2012 Chile cars sales.

But completing that transformation will take time and the chances of a dip in the interim are significant.

Added to that is fact that foreign investors who have traditionally made all their goods in China are now turning to cheaper labour markets in South-East Asia.

As China has boomed, wages have gone up and big investors have moved south to Vietnam, Cambodia and Thailand, and west to India.

China has become the world's second largest economy by making everything for everyone and at the lowest price.

To continue its trajectory it now needs to take advantage of its own increasingly wealthy population and persuade them to buy more.