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China's 2013 Economic Growth Dodges 14-Year Low But Further Slowing Seen

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Reuters 20/1/14

'(Reuters) - China's economy narrowly missed expectations for growth to hit 14-year lows in 2013, though some economists say a cooldown will be inevitable this year as officials and investors hunker down for difficult reforms. The chance that the world's second-largest economy may decelerate in coming months was underscored on Monday by data that showed growth in investment and factory output flagged in the final months of last year.

Waning momentum capped China's annual economic growth at a six-month low of 7.7 percent in the October-December quarter, a slowdown some analysts say may deepen this year as China endures the short-term pain of revamping its growth model for the long-term good.

Full-year growth in 2013 was 7.7 percent, steady from 2012 and just slightly above market expectations for a 7.6 percent expansion, which would have been the slowest since 1999.

After 30 years of sizzling double-digit economic growth that lifted many millions of Chinese out of poverty but also devastated the environment, China wants to change tack by embracing sustainable and higher-quality developmenticon1.png instead.

That means reducing government intervention to allow financial markets to have a bigger say in allocating resources, and promoting domestic consumption at the expense of investment and exports.

Monday's data from the National Bureau of Statistics showed China's 56.9 trillion yuan ($9.4 trillion) economy is still very much dependent on investment for growth.

Capital formation accounted for 54 percent of China's economic growth last year, exceeding the 50 percent share taken up by consumption. Net exports, on the other hand, detracted 4.4 percent from overall growth.

For the whole of 2013, China's fixed-asset investment climbed 19.6 percent, the smallest increase in at least 10 years and a tick below forecasts for a 19.8 percent rise.

Ambitious investment by local Chinese governments that have racked up some $3 trillion worth of debt has been at the forefront of China's investment drive in recent years, a trend that must be checked, said Ma Jiantang, head of China's statistics bureau.

"In 2014, I believe reforms will continue to be a key driving forces for economic growth," Ma said on Monday.'

Reuters 17/1/14

'SHANGHAI, Jan 17 (Reuters) - The trust firm responsible for a troubled high-yield investment product sold through China's largest banks has warned investors they may not be repaid when the 3 billion-yuan ($496 million)product matures on Jan. 31, state media reported on Friday.Investors are closely watching the case to see if it will shatter assumptions that the government and state-owned banks will always protect investors from losses on risky off-balance-sheet investment products sold through a murky shadow banking system.

Based on a loan to an unlisted coal company, the now distressed product was created by China Credit Trust Co Ltd, while Industrial and Commercial Bank of China , the world's largest bank by assets, helped to market it to wealthy investors in central Shanxi province.

On Friday, the official China Securities Journal reported that the trust company is considering legal action to press related parties for repayment to protect investors' interests.

The newspaper went on to quote trust industry sources saying an outright default was likely to be avoided simply by delaying repayment until arrangements were made to repay investors by other means.

ICBC, which marketed the product without providing any formal guarantee against default, said on Thursday that it would not bear the "main responsibility" for repaying investors.

China has not suffered a large-scale public default as yet because local governments and state banks have stepped in with bail outs.

Last year, trust loans accounted for 11 percent of overall corporate fundraising, central bank data shows, and a default could spark a domino effect if investors lost confidence.

A sudden pullback in financing from trusts and other wealth management products would hurt weak borrowers like local governments and real estate developers, who struggle to access traditional bank loans.

Alarm bells first rang over the trust loan to Shanxi Zhenfu Energy Group Ltd when a vice chairman of the coal company was arrested for accepting deposits without a banking licence.

China Credit Trust last year warned investors that Shanxi Zhenfu Energy Group Ltd. had taken out high-interest underground loans totaling 2.9 billion yuan, bringing its total liabilities to 5.9 billion yuan and threatening its ability to repay the trust loan.

China's coal industry has been battered by falling prices over the last year. Several other banks and trust companies are facing losses on loans to another coal company, Liansheng Resources Group.

"Mining-related trust products are relatively large-scale, and they now face potential crisis because of the weakness of the coal market," the China Securities Journal quoted an executive at a unnamed trust firm as saying.

"However, these trust products are usually developed cooperatively by banks and trust firms, with a relatively high ability to resolve risk," the executive was quoted as saying. "Even if an individual product has trouble, banks will help actively, and there is room to ease liquidity problems."'

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