As was widely forecast, Premier Li Keqiang yesterday lowered China’s 2015 growth target to “around 7%”, down on the 7.4% growth rate reported for 2014 which was the lowest in 24 years.
Growth last year missed the official target of around 7.5% and it is likely that the economy’s slowdown will see growth challenge the new, lower target rate by the end of the year.
The cut was announced at the the opening of the first day of the annual National People’s Congress, an 11 day gathering of China’s parliament in Beijing.
In making the announcement – which was first forecast back in late December, Mr Li said, “The target growth rate of approximately 7% takes into consideration what is needed and what is possible … If China’s economy can grow at this rate for a relatively long time, we will secure a more solid material foundation for modernisation”.
This lower forecast is too high compared with the latest estimates from the International Monetary Fund (IMF) which in January revised down China’s growth rates to 6.8% and 6.3% for 2015 and 2016, respectively. The World Bank has similar estimates.
The government (especially through the central bank) is trying to transition the Chinese economy from its debt-fuelled, investment-led growth model which really accelerated after the GFC in late 2008 to a more balanced model with increased domestic consumption.
That is causing problems as growth slows, and the property sector contracts. So worried is the government about the pace of the growth slowdown that country’s central bank, The People’s Bank of China, announced a second interest rate cut in less than four months last Saturday.
The central bank also cut the reserve requirement ratio for banks twice in the same time – in November to increase market liquidity and in early February.
This slowdown is of greater concern to Australia than the new, lowered target.
It means further pressure on export volumes and prices of iron ore and coal, while energy exports will remain under pressure because of the slide in oil prices and the fact that prices won’t recover the $U100 a barrel (for oil) mark without something significant happening, such as another earthquake and nuclear disaster which we saw in Japan in march 2011.
Coal consumption for some unnamed areas (presumably Beijing, Shanghai and other major cities which are politically sensitive) will see no growth in coal consumption this year, which reinforces the idea that Chinese coal imports will be weak this year.
Premier Li also lowered the consumer price inflation target to “around 3 per cent”, down from 3.5% last year and the actual 2% rate (a five year low) for 2014.
The lowered CPI target acknowledges disinflationary pressures on the economy but implies inflation will pick up steadily.
In January, the CPI slowed from 1.5% to just 0.8%, while producer price inflation fell to a deflation rate of more than 4% – marking three years of steadily deepening price pressures on Chinese industry and commerce.
Premier Li also said in his speech yesterday, "China’s economic development has entered a new normal. Our country is in a crucial period during which challenges need to be overcome and problems need to be resolved. Systemic institutional and structural problems have become ‘tigers in the road’ holding up development."
Other targets he announced: 10 million new urban jobs, foreign trade growth this year (both imports and exports) of “around 10 per cent” and “achieve a basic balance of payments”.
China’s military spending will rise by about 10.1% this year , compared with the 12.2% rise last year to about $US132 billion.
That’s second only to the US, although many foreign experts say that China’s real military spending may be up to double the official figure because of the money spent on government technology and organisations such as the Public Security Bureau (both of which have military roles as well).
That would still fall far below the Pentagon’s proposed $US585 billion spending plan for 2015, but it does help explain rising tensions in Asia, especially East Asia from Japan south to Vietnam, all of whom have had some barney with China over disputed islands and seabed territories.
And finally, there’s one policy that won’t change – the anti corruption program. The government made it clear that wouldn’t be relaxed.
