GDP growth to hit 7.6% this year

China Daily (Hong Kong) - - FRONT PAGE - By CHEN JIA chen­jia1@chi­

China’s GDP growth will be 7.6 per­cent this year, en­abling the econ­omy to main­tain mo­men­tum into 2014, the head of the coun­try’s top eco­nomic plan­ning au­thor­ity said on Wednes­day.

This com­pares with 7.7 per­cent growth in 2012 and 9.3 per­cent in 2011, but it is higher than the yearly tar­get of 7.5 per­cent, set at the start of 2013.

But Xu Shaoshi, min­is­ter of the Na­tional De­vel­op­ment and Re­form Com­mis­sion, also said that down­ward pres­sure on the econ­omy is not to be taken lightly when China’s “tra­di­tional growth model” faces chal­lenges from a dif­fer­ent mar­ket en­vi­ron­ment.

Re­port­ing to a meet­ing of the Stand­ing Com­mit­tee of the Na­tional Peo­ple’s Congress, the top leg­is­la­ture, Xu said in­ter­na­tional and do­mes­tic eco­nomic con­di­tions have changed.

In con­trast, the Chi­nese econ­omy’s struc­tural up­grad­ing has been slow and has yet to show a fun­da­men­tal im­prove­ment as ex­pected, he said.

“The tra­di­tional com­par­a­tive ad­van­tage is weak­en­ing, while it will take time for us to build a new ad­van­tage,” he said.

The econ­omy faces many prob­lems. Ser­vice in­dus­tries have still to re­al­ize their full po­ten­tial, strate­gic emerg­ing in­dus­tries are in their in­fancy, and in­dus­tries such as steel, ce­ment, elec­trolytic alu­minum, plate glass and ship­build­ing have over­ca­pac­ity.

Fi­nan­cial risks are also loom­ing, with a hefty pro­por­tion of debt fi­nanc­ing con­cen­trated on pub­lic in­fra­struc­ture projects that only gen­er­ate low re­turns in the long run. There is al­ready over­sup­ply in the man­u­fac­tur­ing and real es­tate sec­tors, he said.

If China fails to han­dle its govern­ment debt prop­erly, “it will eas­ily trig­ger sys­temic fi­nan­cial dan­ger”, Xu warned.

He made the re­marks in a mid-term eval­u­a­tion of the 12th Five-Year Plan (201115), say­ing that sound progress has been made over­all dur­ing its im­ple­men­ta­tion.

The 12th Five-Year Plan aims for av­er­age an­nual GDP growth of 7 per­cent.

Other main macroe­co­nomic tar­gets, such as those con­cern­ing em­ploy­ment, in­fla­tion and the in­ter­na­tional bal­ance of pay­ments, were achieved in the past three years, Xu said.

Zhu Haibin, chief econ­o­mist in China at JPMor­gan Chase & Co, said a proper, but not too fast, growth rate in the next two years will help the coun­try push for­ward with eco­nomic re­forms and to tackle struc­tural im­bal­ances.

GDP growth is likely to con­tinue fall­ing, from 7.6 per­cent in 2013 to 7.4 per­cent in 2014, with mod­er­ate do­mes­tic in­vest­ment growth, he said.

Zhu said it would be con­sis­tent with the tar­get spec­i­fied in the 12th FiveYear Plan to lower the 2014 growth tar­get to 7 per­cent from 7.5 per­cent, the low­est since 2005.

“Slower growth would send a clear sig­nal to lo­cal govern­ments and the mar­ket that the new lead­ers care more about the qual­ity and sus­tain­abil­ity of growth than the high rate of growth,” Zhu said.

Peo­ple’s Daily re­ported on Wednes­day that Bei­jing’s mu­nic­i­pal lead­ers have low­ered the city’s eco­nomic growth tar­get from 8 per­cent in 2013 to 7.5 per­cent in 2014.

An­a­lysts said this may set an ex­am­ple for other cities and prov­inces as the top lead­er­ship seeks a more sus­tain­able and high-qual­ity growth pat­tern.

“There is no doubt that pol­i­cy­mak­ers are se­ri­ously con­cerned about the rapid debt build- up over the past five years,” said Stephen Green, chief econ­o­mist in China at Stan­dard Chartered Bank. “Of most con­cern is cor­po­rate lever­age in the heavy in­dus­trial sec­tor, and lo­cal govern­ment debt.

“The speed of in­crease and ap­par­ent lack of growth div­i­dend have made pol­i­cy­mak­ers cau­tious about al­low­ing lever­age to rise more, al­though the ab­so­lute lever­age lev­els are man­age­able,” he said

Ac­cord­ing to Green’s cal­cu­la­tion, the debt level at the end of 2012 was about 215 per­cent of GDP, an in­crease of 65 per­cent­age points since 2008. The debt sit­u­a­tion will prob­a­bly re­sult in a tight mone­tary pol­icy and drags on growth, he said.

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