Xi open to growth decline of 7 percent in China

25 Dec, 2016 - 00:12 0 Views
Xi open to growth  decline of 7 percent in China Chinese president Xi Xinping

The Sunday Mail

PRESIDENT Xi Jinping is open to China’s economic growth slowing below the government’s 6,5 percent target due to rising debt and concern about 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 last 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 US$11 trillion economy would remain stable with slower growth as long as employment stays firm, the person said. 

Bottom of Form
Last year, policy makers pledged an annual growth rate of at least 6,5 percent for five years through 2020 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.

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.”

 Debt Levels
Some meeting participants sounded the alarm about unsustainable debt, noting that other nations have experienced crises after borrowing climbed to around 300 percent of GDP, the person said. China’s debt-to-GDP ratio rose to about 270 percent 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 US 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.

Bears defied
The world’s second-largest economy has defied bears this year with three straight quarters of 6,7 percent growth. Economists have raised projections for China’s growth in 2017 to 6,4 percent from 6,3 percent in September, a Bloomberg survey shows.

Trump has threatened to slap tariffs on Chinese products while also questioning the US’s policy on Taiwan, which Beijing considers its territory. Frothy property markets and a falling yuan also pose challenges to the economy.

Last year’s 6,9 percent expansion was the slowest in a quarter century. For this year, the government set a 6.5 percent to 7 percent target range, slower than last year’s goal of about 7 percent.

IMF Managing Director Christine Lagarde said earlier in February that the fund strongly recommended that China set a growth target range of 6 percent to 6,5 percent.

Too much emphasis on meeting growth objectives is increasing financial risk, according to Huang Yiping, an adviser to the People’s Bank of China. The higher the short-term growth target, the more difficult it will be to rebalance the economy to favour long-term growth, Huang, an economics professor at Peking University, said at an event this week in Beijing. — Bloomberg

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