China Tempers Growth Aspirations

By Glenn Dyer | More Articles by Glenn Dyer

The Chinese government has bowed to the inevitable and has set a lower economic growth target for 2019 of 6% to 6.5%.

That compares to 2018’s imprecise target of “around” 6.5%. Reuters reports the lowering of the target was made in the wake of the clear slowing of the level of activity in the final three months of 2018 and the continuing disruption caused by the trade war with Donald Trump’s America.

The proposed lower target will be unveiled at the annual parliamentary session in March after being endorsed by top leaders at the annual closed-door Central Economic Work Conference in mid-December, Reuters reported from Beijing.

Data out on January 21 is forecast to show the Chinese economy grew around 6.6% in 2018 – the weakest since 1990. That will be down from the 6.8% annual rate in the first half of 2018 and 6.9% for 2017.

Figures out on January 14 will reveal December and 2018 trade data.

A further slowing is expected in GDP growth in the current March quarter before stimulus spending, tax cuts and the 1% drop in the reserve ratio for banks starts having an impact.

Reuters reported at the weekend that China needs “Growth of about 6.2% in the next two years to meet the ruling Communist Party’s longstanding goal of doubling gross domestic product and incomes in the decade to 2020, and to turn China into a “modestly prosperous” nation.”

Meanwhile, the December meeting maintained a 3% consumer inflation target for 2019 despite a recent softening in price rises, leaving some room for the government to stimulate weaker consumption without igniting cost rises.

Data last week showed China’s consumer inflation eased to 1.9% in December from 2.2% in November. The full-year CPI was up 2.1% — well under the 3% annual target. It peaked at an annual 2.9% in February of last year.

The Producer Price Index (PPI) in December rose 0.9% from a year ago, lower than the 2.7% year-on-year increase in November.

The latest data brought China’s PPI for January to December 2018 a rise of 3.5%. That was down on the 4.9% annual rate for 2017 which was the highest since 2008.

Moody’s, the credit rating group said on Friday that it sees China’s growth slowing this year.

“We see growth in China slowing to 6 percent,” Christian Fang, an assistant vice president-analyst at Moody’s, told CNBC. “I think the bigger issue for us is that policy trade-offs have increased in China. On the one hand, there is this broader campaign of de-risking, deleveraging, but policy also seems to be shifting slightly towards growth — supporting growth.”

“Some of the tools in the policy response they have meted out are untested,” he added. “Tax cuts, for instance, we don’t know what the businesses and the consumers — how they would respond to the tax cuts.”

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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