China to keep same GDP target for 2018

Crackdown on debt to continue

China’s leaders are likely to maintain this year’s growth target of “around 6.5 percent” in 2018, even as they ratchet up efforts to prevent a destabilizing buildup of debt in the world’s second-largest economy, Reuters reported on Monday, citing policy sources.

Policymakers will 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 were highlighted last week when a sell-off in bonds spread to the stock market.

Top policymakers are expected to gather in December 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 OK as long as we are able to secure growth of 6.5 percent.”

The need to address debt and property risks was highlighted by a recent warning from the central bank chief, Zhou Xiaochuan, 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,” said a second source.

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 decision-making process.

Having targeted financial sector debt this year, the government is likely to focus more on corporate debt next year to tackle bad loans that are weighing on State-owned enterprises, the policy sources said.

The central bank has issued sweeping guidelines to tighten rules for the country’s $15 trillion asset management sector and online micro-lenders, in the latest steps to address systemic risks in the large shadow banking sector.

Fears of a crackdown on debt have rattled markets. Pressure on bond yields spilled over into the stock market last week, with shares experiencing their biggest selloff in months on Thursday.

“The market feels great pain when you tighten a bit, [and] the bond market has been falling sharply. This may trigger systemic risks if we cannot handle it well,” said one of the sources.