China poised to cut growth target, ramp up stimulus

| | Updated on: Dec 07, 2014

China is poised to cut its growth target for the first time in three years and ramp up stimulus as the economy comes under increasing downward pressure, analysts say ahead of a key policymakers’ conference expected this week.

President Xi Jinping and other top leaders are trying to put China’s increasingly affluent consumers at the centre of the world’s second-largest economy, rather than investment and exports, and are ready to tolerate slower expansion in GDP to achieve more sustainable growth.

But how much lower is the question, with China’s economy assailed on multiple fronts, including a deflating property bubble, high debt levels, and the threat of deflation hovering in the background.

Central economic work conference

Economists will be looking for clues in next year’s gross domestic product (GDP) growth target, which is likely to be decided at the annual Central Economic Work Conference.

The gathering — which is not announced in advance — is expected this week, although its conclusions will probably not be formally unveiled until March.

Separately, main monthly economic statistics are due this week, with analysts expecting weakening industrial production growth and chronically low inflation.

The closely watched economic conference brings together key officials to decide policy for the coming year, with topics expected to include monetary policy, the consumer price index (CPI) target, and further economic reforms.

“We expect the government to lower its 2015 economic targets for GDP growth to 7.0 per cent from 7.5 per cent in 2014 and CPI inflation to 3.0 per cent from 3.5 per cent,” Nomura economists wrote.

“We believe the government will need to ease policy further — even to meet a lower GDP growth target — due mainly to strong headwinds from the property market correction, severe overcapacity in upstream industries and high local government debt.”

China had last lowered the target in 2012 to 7.5 per cent from 8.0 per cent and a drop to 7.0 per cent would be the lowest since 2004.

Slowing growth this year prompted the central bank to carry out a surprise interest rate cut last month, reducing the benchmark borrowing costs for the first time in more than two years.

Published on December 07, 2014

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