Chinese President Xi Jinping (習近平) is not wedded to China’s 6.5 percent economic growth objective due to concerns about rising debt and an uncertain global environment after US president-elect Donald Trump’s win at the polls, a person familiar with the situation said.
Xi this week told a meeting of the Chinese Communist Party’s Leading Group for Financial and Economic Affairs that China does not need to meet the objective if doing so creates too much risk, said the person, who asked not to be named because the discussions were private.
Leaders at the gathering agreed that the US$11 trillion economy would remain stable with slower growth as long as employment stays firm, the person said.
Below-target growth would be in line with analysts’ projections that the expansion will keep decelerating in coming years from an estimated pace of 6.7 percent this year. The slowdown coincides with the nation’s broad shift from an export-led economy to services, which accounted for more than half of growth last year for the first time, and domestic consumption.
Last year, policymakers pledged an annual growth rate of at least 6.5 percent for five years through 2020. Some economists criticize the growth objective for motivating officials to take risks that may jeopardize financial stability.
The shift signals that leaders see systemic risk as great enough to warrant re-evaluating key goals and might be less inclined to add to fiscal and monetary stimulus.
“This is a sign of positive change,” Societe Generale SA Paris-based chief China economist Yao Wei (姚偉) said. “The arbitrary growth target of 6.5 percent has become not only an impediment to the necessary structural adjustments, but also a culprit for rapidly rising debt risk.”
Some meeting participants sounded the alarm about unsustainable debt, noting that other nations have experienced crises after borrowing climbed to about 300 percent of GDP, the person said.
China’s debt-to-GDP ratio rose to about 270 percent this year, the person said.
The source of the ratio was unclear.
At another meeting last week, Xi and his top economic policy lieutenants pledged to make preventing and controlling financial risk to avoid asset bubbles a top priority for next year.
They also said they plan prudent and neutral monetary policy and proactive fiscal policy next year, according to a statement after the three-day Central Economic Work Conference.
Policymakers said they are aiming for the 6.5 percent average pace to achieve the party’s promise of building a “moderately prosperous society” by that year with GDP and income levels double those of 2010.
“A slower pace in the medium to long-term will help adjust the economic structure and dissolve the risks,” said Zhu Qibing (朱啟兵), chief macroeconomy analyst at BOCI International (China) Ltd (中銀國際證券) in Beijing. “That will boost the long-term health of the economy.”
The world’s second-largest economy has defied bears this year with three straight quarters of 6.7 percent growth.
Economists have raised projections for next year’s growth to 6.4 percent from 6.3 percent in September, a Bloomberg survey shows. Forecasters expect 6 percent growth in 2018.
Too much emphasis on meeting growth objectives is increasing financial risk, People’s Bank of China adviser Huang Yiping (黃益平) said.
The higher the short-term growth target, the more difficult it will be to rebalance the economy to favor long-term growth, Huang said at an event in Beijing this week.
“Being open to tolerate slower growth for the sake of an altered growth model is a very important signal,” said Frederik Kunze, chief China economist at Norddeutsche Landesbank in Hanover, Germany. “It seems like making a virtue out of the obvious, because the current economic activity happens at the cost of future growth.”
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