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Tags: China | economy | growth | finance

China Lowers Growth Goal to About 7 Percent as Headwinds Intensify

Wednesday, 04 March 2015 08:27 PM EST

China set the lowest economic growth target in more than 15 years as leaders tackle the side effects of a generation-long expansion that has spurred corruption, fueled debt risks and polluted skies and rivers.

The goal of about 7 percent — down from last year’s aspiration of about 7.5 percent — was given in a work report Premier Li Keqiang will deliver to the annual meeting of the legislature in Beijing. Fiscal policy will remain proactive and monetary policy prudent, while the yuan exchange rate will be kept at a reasonable and balanced level, the government said.

Headwinds that include a property slump, excess industrial capacity and disinflation prompted the second interest-rate cut in three months at the weekend. The government has vowed to move away from expansion at all costs as it tries to clean up the nation’s environment and control a debt surge, with Li flagging increased economic difficulties this year.

“The lower target reflects the desire to reduce additional leverage in the economy,” said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong. “The 2015 targets point to determination to push through with structural reforms even at the expense of somewhat slower growth.”

The yuan weakened.

Li’s work report, which opens the meeting of the National People’s Congress, is his second since the 59-year-old was named premier toward the end of 2013’s legislative gathering. Along with President Xi Jinping, Li is seeking to increase efficiencies and strengthen market forces.

Balancing Act

Policymakers are trying to balance the need to cushion the economy’s slowdown with monetary and fiscal stimulus against longer-term goals. They’re seeking to increase the role of private business, promote innovation and reshape the fiscal framework as they shift the economy from reliance on debt-fueled investment toward greater consumption and services.

China will strengthen supervision in shadow banking, according to a work report from the National Development and Reform Commission also released Thursday. It will aim to keep the urban unemployment rate under 4.5 percent, expand M2 money supply by about 12 percent, and target trade growth of about 6 percent this year, it said.

Li has previously said a slower expansion is tolerable as long as enough jobs are created. Even after economic growth slowed to 7.4 percent last year, the weakest pace since 1990, the nation created 13.2 million new urban jobs, exceeding a target of 10 million and the previous year’s 13.1 million.

Fastest Growth

The goal of about 7 percent compares to the International Monetary Fund’s forecast of a 6.8 percent expansion this year and the World Bank’s 7.1 percent estimate. At that pace, it’s set to remain the fastest growing Group of 20 nation.

The inflation target was set at about 3 percent and stable growth in aggregate financing will be targeted. Policymakers will flexibly use interest rate and required reserve ratio tools, the government said.

The interest-rate cut announced Saturday reflected deepening concerns over the economy’s slowdown. The People’s Bank of China will cut deposit and lending rates again next quarter, according to economists surveyed by Bloomberg.

It joined a global easing wave that comes as the Federal Reserve edges closer to increasing interest rates, a move that would draw funds away from emerging markets.

The government last targeted an expansion of “about 7 percent” in 1999. China ended up achieving 7.6 percent growth that year.

“Policy makers have signaled acceptance of lower growth, allowing more space for reform and moderating expectations of aggressive stimulus,” Bloomberg economist Tom Orlik wrote. “A shrinking working-age population, overcapacity in industry, and a stressed financial system mean China’s potential to grow is not what it used to be.”%%

© Copyright 2023 Bloomberg News. All rights reserved.

China set the lowest economic growth target in more than 15 years as leaders tackle the side effects of a generation-long expansion that has spurred corruption, fueled debt risks and polluted skies and rivers.
China, economy, growth, finance
Wednesday, 04 March 2015 08:27 PM
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