China’s finance minister signalled that Beijing may be willing to tolerate economic growth in the second half of the year significantly below 7pc, marking the most sobering comment to date from a senior policymaker on the country’s slowdown.
Speaking in Washington, Lou Jiwei said growth in the world’s second-largest economy could be 7pc this year, the official Xinhua news agency reported on Friday.
That would mean growth coming in below the government’s official target for the first time in living memory.
Mr Lou said economic growth in the first half of the year would be “slightly lower than 7.7pc”. China is due to report GDP for the latest April-June quarter on Monday.
“There is no doubt that China can achieve the growth target, though the 7pc goal should not be considered as the bottom line,” Xinhua reported in paraphrasing Mr Lou’s remarks made on the sidelines of the U.S.-China Strategic and Economic Dialogue.
Corporate and investment bank TD Securities said the comments implied a sharp slowdown in economic growth in the rest of the year.
“It’s not hard to do the maths to work out that 6 per cent (year on year) GDP growth is required by year end to achieve that,” Annette Beacher, head of Asia Pacific research FX and rates strategy of TD Securities, said in a client note.
Chinese authorities, worried about over-investment and strong growth in informal lending, have indicated they are prepared to tolerate slower economic growth rates as they drive through structural reforms.
The country’s official 2013 growth target of 7.5pc was approved only four months ago at the annual National People’s Congress (NPC), or parliament, so analysts said it was highly unlikely that Mr Lou was pointing to a change in the target.
“A revision of the official growth target may require NPC approval, so we regard the quote with caution and wait for any clarification from the government,” said Zhiwei Zhang, economist at Nomura in Hong Kong, in a note.
Instead, they suggested he was trying to steer expectations towards slower growth as the government tries to wean the economy off a reliance on exports and investment and more towards consumption-led economic activity.
“While next year’s target remains unknown, we believe it will be lowered again to 7pc. A year ago, a target that low would have sparked a global panic and ‘risk off’ reaction,” Ms Beacher said.
Markets showed muted reaction to Mr Lou’s remarks. The Australian dollar dipped on the news about the country’s biggest export market, briefly before recovering.
Xinhua quoted Mr Lou as saying that 7pc growth this year should not be considered the bottom line and that while the pace of economic activity was slowing down there would not be a hard landing.
“Despite the slowdown of China’s economic growth rate, the structural reform is paying off,” Xinhua quoted Mr Lou as saying.
Those remarks echo comments earlier this week by Premier Li Keqiang, who has been pushing reform over growth speed. Mr Li said in a speech in southern China that more effort must be put into structural adjustments, reforms and economic transformation.
“If you take these (Lou’s) comments and the comments from Li Keqiang two days ago, it feels as if at the moment, top leaders in China, they definitely want to push the envelope a bit in becoming ever tolerant of slower growth,” said Louis Kuijs, economist at RBS in Hong Kong.
“It seems at the moment they don’t have a fixed floor that is agreed on, they are looking for one, or maybe they don’t need one specific number.”
Last month, Vice President Li Yuanchao said China would be able to maintain a 7pc economic growth rate in the future.
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