China vows to meet growth targets

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China vows to meet growth targets
THE AUSTRALIAN JUNE 11, 2014 12:00AM

Scott Murdoch

China Correspondent
Beijing

THE Chinese government has signalled it stands ready to support the economy with monetary policy easing and potential stimulus measures to ensure the nation meets its official growth target this year.

In unusually frank comments, Premier Li Keqiang said it was the government’s responsibility to ensure the economy stayed in good shape to support China’s ongoing industrialisation and ­urbanisation process.

China’s official growth target is set at 7.5 per cent for 2014. The economy expanded by 7.4 per cent in the first quarter, the slowest rate in more than a decade.

The People’s Bank of China cut the reserve rate requirement, which dictates the level of capitals the institutions must hold, by 50 basis points late on Monday night for banks lending to the agricultural and small business sectors across the country.

It was estimated the reduction would cover about 80 per cent of China’s commercial banks and follows a similar decision last month to cut the RRR for regional and provincial banks.

Mr Li hosted a meeting with eight high-level provincial officials last week in Beijing and said the government stood by to make sure China met its growth targets.

If the economy does not grow by 7.5 per cent this year, it would be the first time in 25 years that the objective had not been met.

The prospect of government policy action rose further yesterday, when inflation during May increased by 2.5 per cent, compared to the same time last year, which was below the official 3 per cent target.

The result was up from 1.8 per cent in April and the gain was attributed to pork and vegetable price rises. “We said in the past that government officials should be not be evaluated just only by GDP growth, but that does not mean that we don’t need to keep reasonable growth,” Mr Li said.

“The economic growth targets set this year were decided by the Central Economic Working conference ... and it is therefore legally binding.

“The whole Communist Party, central as well as local government, should take responsibility for ensuring the growth target is successful. Almost half of 2014 has passed and local governments, provincial leaders in particular should have a sense of responsibility and urgency.”

It was reported that Mr Li was most concerned about credit ­rationing, financial system liquidity and future export growth. China’s economic growth is key to Australia’s future prospects, given it is this nation’s largest trading partner. Two-way trade between the pair is worth at least $US130 billion ($139bn) a year.

The combined RRR cut and the potential stimulus package buoyed the tightly controlled yuan against the US dollar yesterday. The two-way currency trade recorded its strongest three-day run in three years.

Nomura’s chief China economist, Zhang Zhiwei, said it was increasingly likely the central bank would need to cut interest rates to help sustain economic ­activity.

“We believe this increases pressure on the PBOC to loosen monetary policy further in the next few months,” he said. “The policy easing has become significant from a macro perspective.”

Goldman Sach’s China economist, Yu Song, said he believed the PBOC would implement more targeted rate reductions in the next few months rather than an overall monetary policy cut.

“We believe there will likely be further policy easing measures and that they are likely to also be targeted rather than broad based,” Mr Yu said.

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PUBLISHED JUNE 16, 2014

Beijing still depending on stimulus policies
But govt reluctant to match 4t yuan package of 2008

Softening: GDP grew an annual 7.4 per cent in the first quarter of this year, weaker than the 7.7 per cent in the previous quarter and the worst since a matching 7.4 per cent expansion in the third quarter of 2012. - PHOTO: AFP
[SHANGHAI] China is unlikely to resort to the kind of spending splurge that saw it through the 2008 financial crisis to deal with its slowing economy, analysts say, but recent moves to ramp up state support suggest it cannot wean itself completely off the stimulus drug.
Policymakers are seeking more tools to keep growth from dipping below the key 7.5 per cent level, worried that job losses could spark social unrest.
The central bank announced last Monday that it will slash the amount of funds some lenders, including rural banks, must hold in reserve to pump more money into the economy - the second such move in two months.
Premier Li Keqiang on Wednesday gave details on plans announced in March to transform China's longest river, the Yangtze, into an "economic belt" by building transport infrastructure to link the country's west and east.
Speaking to academics in the past week, Mr Li called for more attention to a "targeted" adjustment of the economy, using the phrase for the first time, though he added that "fine-tuning" was needed to keep growth on track.
But analysts said the basket of measures accumulated so far this year had moved beyond their original label of small-scale pump-priming.
"It's certainly past the so-called 'mini-stimulus' and the scope of 'fine-tuning' . . . but it's not a big stimulus either," Liu Li-Gang, a Hong Kong- based economist for ANZ Bank, said.
"It might speed up China's investment growth a little but it's not comparable to the four trillion yuan package during the financial crisis," he said.
In March, Premier Li announced an economic growth target of "around 7.5 per cent" for this year and has repeated that China can meet that goal.
China's economy grew an annual 7.7 per cent in 2013, the same level as in 2012, which was the worst pace since 1999.
The binge of four trillion yuan (S$820 billion at current exchange rates) on infrastructure in 2008 and 2009 still reverberates with a deflating property market bubble and a multi-trillion- dollar "shadow banking" sector which grew out of loose credit.
This time, the government is reluctant to match those levels of spending.
"The new leadership has ruled out a repeat of the big stimulus of 2008-09," said Jian Chang, China economist at Barclays Capital in Hong Kong.
"A highly leveraged economy with mounting financial and fiscal risks related to surging shadow bank lending and ballooning local government debt will constrain policy options," she added.
Other measures this year include speeding up infrastructure investment especially for railways, building affordable urban housing and accelerating spending of already-budgeted funds.
The economy found some relief on Friday with indicators like industrial production and fixed-asset investment - a key measure of spending on infrastructure - remaining steady in May compared with April, which could take some pressure off the government.
"The property sector is still putting downward pressure on the economy but this appears to have been largely offset by infrastructure spending and other targeted measures, which have shored up other areas of the economy," said Julian Evans-Pritchard, China economist for Capital Economics.
Still, the government will have to do more if it wants to stabilise the economy. Gross domestic product grew an annual 7.4 per cent in the first quarter of this year, weaker than the 7.7 per cent in the previous quarter and the worst since a matching 7.4 per cent expansion in the third quarter of 2012.
"If economic growth for the second quarter comes in lower than expected, then it's likely to see the government taking further measures," Wendy Chen, Shanghai-based economist for Nomura International, said.
China will announce GDP for the second quarter on July 16. - AFP