 "Xi Jinping")
President Xi Jinping isn’t wedded to China’s 6.5 per cent economic growth objective due to concerns about rising debt and an uncertain global environment after Donald Trump’s election win in the US, according to a person familiar with the situation.
Xi told a meeting of the Communist Party’s financial and economic leading group this week that China doesn’t need to meet the objective if doing so creates too much risk, said the person, who asked not to be named because the discussions were private. Leaders at the gathering agreed that the $11 trillion economy would remain stable with slower growth as long as employment stays firm, the person said.
Below-target growth would be in line with analyst projections that the expansion will keep decelerating in coming years from an estimated pace of 6.7 per cent in 2016. The slowdown coincides with the nation’s broad shift from an export-led economy to services, which accounted for more than half of growth last year for the first time, and domestic consumption.
Last year, policy makers pledged an annual growth rate of at least 6.5 per cent for five years through 2020. Some economists criticise the growth objective for motivating officials to take risks that may jeopardise financial stability. The International Monetary Fund is among those that have recommended a lower target.
The shift signals that leaders see systemic risk as great enough to warrant re-evaluating key goals and may be less inclined to add to fiscal and monetary stimulus. Xi consolidated his power in October, ahead of a twice-a-decade leadership reshuffle next year, with the party naming him its “core”.
“This is a sign of positive change,” said Yao Wei, chief China economist at Societe Generale SA in Paris. “The arbitrary growth target of 6.5 per cent has become not only an impediment to the necessary structural adjustments but also a culprit for rapidly rising debt risk.”
Debt levels
Some meeting participants sounded the alarm about unsustainable debt, noting that other nations have experienced crises after borrowing climbed to around 300 per cent of GDP, the person said. China’s debt-to-GDP ratio rose to about 270 per cent this year, the person said. The source of the ratio was unclear.
At another meeting last week, Xi and his top economic policy lieutenants pledged to make preventing and controlling financial risk to avoid asset bubbles a top priority for 2017. They also said they plan prudent and neutral monetary policy and proactive fiscal policy next year, according to a statement after the three-day Central Economic Work Conference.
Rising populist sentiment in the U.S. and Europe pose another risk for Xi’s government, which has warned of the dangers of a trade war. Xi also warned China should avoid the so-called Thucydides Trap, the person said, referring to the theory attributed to the eponymous ancient Greek philosopher that says a rising power will clash with an established force.
The State Council Information Office didn’t immediately respond to faxed questions on Friday about the growth target and debt levels.
Policy makers said they are aiming for the 6.5 per cent average pace to achieve the party’s promise of building a “moderately prosperous society” by that year with gross domestic product and income levels double those of 2010.
“A slower pace in the medium- to long-term will help adjust the economic structure and dissolve the risks,” said Zhu Qibing, chief macro economy analyst at BOCI International (China). in Beijing. “That will boost the long-term health of the economy.”
Bloomberg
