China’s leaders are likely to maintain this year’s growth target of “about 6.5 percent” next year, even as they ratchet up efforts to prevent a destabilizing buildup of debt in the world’s second-largest economy, according to policy sources.
Policymakers would be under pressure to balance efforts to tackle debt with the need to keep growth on a steady path, they said.
Investor concerns over a crackdown on debt was highlighted last week when a sell-off in bonds spread to the stock market.
Top policymakers are expected to gather next month for the annual Central Economic Work Conference, which investors watch closely for policy priorities for the year ahead, amid a crackdown on riskier banking and investment activities.
“Next year’s growth target could be similar to this year’s,” said a source, who is close to policy discussions within the government. “It’s okay as long as we are able to secure growth of 6.5 percent.”
Chinese President Xi Jinping (習近平) said at the Chinese Communist Party’s 19th National Congress last month that the Chinese government must defuse “major risks” in the economy, as well as fighting poverty and pollution, but he is also committed to meeting a goal set by the previous administration of doubling GDP in the decade to 2020 to turn China into a “modestly prosperous” nation.
That means that growth needs to be about 6.5 percent in each of the next three years.
The urgency to address debt and property risks was highlighted by a warning on the sidelines of the congress from People’s Bank of China Governor Zhou Xiaochuan (周小川) of the risk of a “Minsky moment” — a reference to a sudden collapse in asset prices after long periods of growth fueled by debt.
“Growth cannot be too low, as we still need to build a modestly prosperous society as outlined at the party congress,” a second source said.
Both sources, who requested anonymity due to the sensitivity of the matter, are involved in internal policy discussions and offer advice to Chinese policymakers, but are not part of the final decisionmaking process.
Having targeted financial sector debt this year, Beijing is likely to focus more on corporate debt next year to tackle bad loans that are weighing down state-sector businesses, the policy sources said.
The central bank has issued sweeping guidelines to tighten rules on the nation’s US$15 trillion asset management sector and online micro-lenders, in the latest steps Beijing has taken to address systemic risks in the large shadow banking sector.
Fears of a crackdown on debt have rattled markets, with pressure on bond yields spilling over into the stock market last week, with shares experiencing their biggest sell-off in months on Thursday last week.
“The market feels great pains once you tighten a bit, the bond market has been falling sharply. This may trigger systemic risks if we cannot handle it well,” one of the sources said.
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