There’s a big meeting coming up in China, and it could help to shape the fate of the world economy over the next five years.
The incredibly wordily-named 5th Plenary Session of the 18th Central Committee of the Communist Party of China will be held in Beijing from October 26, and it will set the agenda for China’s policies in the coming five years.
The main goal of the Plenum will be to try and work out China’s 13th Five-Year Plan. The plans set out China’s political, social and economic ambitions for the medium term and drive government policy.
They were first introduced by Mao Zedong in 1953, but have only been of real interest to the West since Deng Xiaoping opened China’s economy to the outside world in the late 1970s.
Probably the most important thing that will come out of this year’s Plenum will be what growth target China sets itself for the coming five years. The country’s current growth target sits at 7% and this isn’t going to change much, according to analysts at Deutsche Bank.
Deutsche just released a note by economists Zhiwei Zhang and Li Zeng, and they think that growth targets aren’t going to change too much for the next five years:
While there are still uncertainties on the growth target in the 13th Five-Year Plan, people’s expectations seem to have zeroed in on two possibilities, 7 per cent or 6.5 per cent. Currently we believe that the likelihood of keeping 7% growth target is slightly higher than cutting it to 6.5%.
Deutsche’s view is a bit different to some others, many of whom are a little bit less optimistic about China’s growth targets. Bloomberg just said that a quarter of economists it asked about China’s growth target think that it will drop as low as 4%, and most think it will at least fall to 6.5%.
This is what the authors had to say about what might happen in the short term if China’s growth target changes:
The two possible targets will have very different implications on policy outlook. If the target is set at 7%, we believe the government will have to maintain its loose policy stance and do more easing. As a result, the leverage of the economy will continue to rise. On the other hand, if the growth target is set at 6.5%, it means the government will tolerate slower growth to allow more space for structural adjustments. In this case, we expect there will be less stimulus efforts by the government.
China’s economic growth has major effects for the rest of the world. Commodity exporters have already been hit by slowing demand for raw materials in the world’s second-largest economy, and both European and US exports would also likely suffer if demand slowed.
Deutsche also noted that it sees China’s growth this year rebounding by 0.2% to 7.2%, saying that in September new loans and total social financing both beat market expectations.