China’s 2017 GDP Growth Target: A Reaction From Global Analysts
Premier Li Keqiang made a government work report at the opening of the annual National People’s Congress session on Sunday, setting China’s growth rate at about 6.5% or higher, the lowest in 25 years. Here are some reactions from domestic and overseas analysts on China’s economic development goals and strategy.
China’s measures to reduce overcapacity, property inventory and corporate-leverage levels would bolster the country’s credit profile if the objectives are achieved without significantly undermining the strength of the financial system and/or government balance sheet, Moody’s Investors Service said in a note on Monday on Li’s government work report. But prospects for a weaker financial system and/or eroded fiscal strength as the measures are implemented would be credit-negative, it said.
Real growth in gross domestic product (GDP) in China is projected to decelerate to 6.4% in 2017 from an actual expansion rate of 6.7% in 2016, with a nominal GDP increase exceeding 9%, UBS economists said in an analysis piece released Monday. Both fiscal support and related credit expansion will likely be less than in 2016 as the government has set the total social financing growth target at 12% for this year, slightly below last year’s outcome, they said. Slightly higher nominal GDP growth and lower credit growth this year means that China’s pace of leverage increase will slow, albeit not by that much, they added.
“The further reduction of the annual growth target is appropriate against the backdrop of China’s continued effort on overcapacity reduction, corporate sector deleveraging, as well as housing market destocking,” J.P. Morgan said in an analysis piece released Monday. “All these are necessary steps to contain risks and to achieve a more-balanced and sustainable growth model in the long run, but are likely to weigh on growth in the near term.”
In addition, China’s external economic and political environment is challenging, especially the potential trade conflicts with the Trump administration, posing significant downside risk, the analysis said. The report highlights that “the uncertainty increases significantly” along with “rising anti-globalization and protectionism sentiments.”
The report said it was worth noting that despite the lower GDP growth target this year, the target for urban new job creation was increased by 1 million, and the government report also states that it “will try to achieve better (growth) results in practice.”
“The growth target of 6.5% is likely to be the bottom line, as solid growth and social stability will be top priority in this year of political transition (2017 will see some major reshuffle in the Communist Party’s 19th National Congress),” J.P. Morgan said.
CICC Fixed Income Research Institute:
The general spirit of the government work report is to progress stably, while emphasizing restructuring. There is no apparent signal for strong stimulus, which shows the government will not simply pursue economic growth, but will instead look to the longer term, the report said.
Qian Yingyi, Dean of the School of Economics and Management at Tsinghua University:
“The premier’s government work report set a strategic guideline this year, that stability comes first. … So, in terms of the reduction of overcapacity, the government will push it ahead stably, and there will be no drastic adjustment. Secondly, the report clearly stated more proactive fiscal policies and prudent monetary policies, which are vital for stable economic growth. The report also raised a new policy called the proactive employment policy. It’s also very important for stabilizing growth,” he said.
Bob Parker, Senior Advisor at Credit Suisse:
“The 6.5% growth forecast for this year I think is realistic,” he said. “That is consistent with the upturn in the purchasing manufacturing indices we’ve seen over the last 3-4 months.
“What is more interesting is that between the lines there is a recognition that China needs to deal with what are some evident problems. First of all, if you look at the monetary policy targets, I think that is consistent with a slow and tightening in monetary policy in China; and the recognition of a credit bubble, … certainly we need some deflation in the credit market. Likewise there is a recognition that spare capacity needs to be brought back.
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