Fri, Sep 25, 2015 - Page 15 News List

China to cut growth target: economists

‘HEAVY HEADWIND’:The Chinese government would probably shoot for a 6.5% expansion, but output next year is likely to end up falling short, an economist said

Bloomberg

China is to further cut its target for economic growth next year amid excess capacity, sluggish investment and weaker manufacturing, economists said.

Government leaders are set to announce a growth objective between 6.5 percent and 7 percent for next year, according to eight of 15 economists in a Bloomberg News survey conducted from Thursday last week to Tuedsay. Four said they expect a 6.5 percent goal.

All of those surveyed said they saw next year’s target falling below the goal of about 7 percent set by Chinese Premier Li Keqiang (李克強) for this year’s growth, highlighting the challenges facing the government as exports slump and investment continues to weaken.

“We believe the government will take a more flexible way than before given the descending trend of real growth,” said Janice Yu (余晶晶), a Hong Kong-based economist at Guosen Securities Co (國信證券).

Economists also reduced their forecasts for third-quarter and fourth-quarter growth from a year earlier to a median estimate of 6.8 percent for both periods, down from 6.9 percent in the previous survey.

With slowing growth and a working-age population that shrank for the first time in at least two decades last year, the Chinese Communist Party might lower its hard growth target of 7 percent to a range between 6.5 percent and 7 percent, and make that a flexible guideline, a person familiar with the discussions said last month.

China announces its targets for growth, inflation and money supply at the National People’s Congress in March. Their challenge looks even harder after a disappointing factory report.

The preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics dropped to 47.0 for this month, missing the median estimate of 47.5 in a Bloomberg survey and falling from a final reading of 47.3 last month. Readings have remained below 50 since March, indicating contraction.

Daili Wang, a Singapore-based economist at Roubini Global Economics LLC, said the Chinese government would probably shoot for a 6.5 percent expansion, but amid a “heavy headwind” to growth, output next year will end up falling short of the government’s target.

Reforms of state-owned enterprises and the financial industry, plus excess supply in real estate and manufacturing, are likely to weigh on growth, Wang said.

The People’s Bank of China has lowered interest rates five times since November last year and reduced the ratio of reserves major banks are required to set aside.

The central bank is likely to cut its required reserve ratio for major banks to 17.5 percent by the end of this year and 15.5 percent by the end of next year from 18 percent, according to the median estimates in the survey.

Economists also forecast that the central bank would lower the benchmark lending rate by another quarter of a percentage point this year and that the government would expand its fiscal deficit next year.

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