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China to put growth before reform ambitions amid slowdown fear
[BEIJING] Chinese leaders will signal that growth is their priority over reform for the world's second-biggest economy by setting a growth target of around 7 per cent in their next long-term plan even as the economy loses momentum, policy insiders say.
The Communist Party's central committee will meet from Oct. 26-29 to set out their 13th Five-Year plan, a blueprint for economic and social development between 2016 and 2020.
While the government has flagged a "new normal" of slower growth as it tries to shift the economy to sustainable, consumption-led growth, official data shows it has consistently at least met, and mostly exceeded, the growth targets it sets. "We will have to rely on policy stimulus to safeguard the 7 per cent growth target," said an economist from a government think-tank. "We should not put financial liberalisation at the forefront of economic reforms." Beijing needs average growth of close to 7 per cent over the next five years to hit a previously declared goal of doubling gross domestic product and per capita income by 2020 from 2010.
But a plunging stock market and the unexpected fallout from a modest devaluation of the yuan have raised fears among policymakers that an abrupt slowdown in growth could spark systemic risks and destabilise the economy. "It appears that growth has outweighed the reform agenda, which could stabilise the market for the short term while adding destabilisation factors in the medium term," said Zhou Hao, senior economist at Commerzbank in Singapore.
The government is likely to boost infrastructure spending in the new Five-Year plan, a favoured means of stimulus in China, under Beijing's push for regional integration and the "New Silk Road" scheme, to try to meet an earlier growth target set for the current decade.
While the specifics remain vague beyond the intention to build out road, rail and building infrastructure projects across Central Asia, analysts also expect the plenum to contain a raft of environmental measures.
Power generation from renewable fuels is expected to be a central pillar of any such initiatives, which would likely boost demand for copper and aluminum in particular as power grids are upgraded and connected to solar, wind and hydro power projects.
The National Development and Reform Commission (NDRC), China's top economic planner, did not respond to a request for comment.
In the first two quarters of the year, annual growth came in at 7.0 per cent, in line with the target for 2015, with the government rejecting suggestions that the figures were being inflated to meet official forecasts.
Reuters reported in June that China could aim for "around 7 per cent" growth for the next five years, but since then market and economic conditions have deteriorated.
The expected emphasis at the upcoming plenum on achieving the growth forecast will raise questions about the leadership's resolve for "decisive results" in wide-ranging economic reforms by 2020 that were made at a party meeting in 2013.
President Xi Jinping has reaffirmed a commitment to market-based reforms, seen by some as a bid to repair damage to the government's reformist image caused by its recent heavy-handed intervention in the stock and currency markets.
But potentially disruptive changes, such as lifting capital controls, may fall behind growth-friendly reforms such as changes to spur private investment in state firms and public projects, the insiders said. "China should not loosen capital controls quickly and yuan internationalisation must be based on market demand and economic development," said a former policy adviser to the central bank.
Cai Fang, vice head of the Chinese Academy of Social Sciences, a top government think-tank, told a recent forum that he expected annual potential growth to dip to 6.2 per cent in 2016-2020 if China failed to unleash new growth drivers.
The government will exceed the 7 per cent target for the current 2011-15 Five-Year plan with growth averaging around 7.8 per cent. But growth has slowed markedly in that time, from 9.5 per cent in 2011 to being on track for a quarter-century low of around 7 per cent this year. "The worst has yet to come. The economic slowdown may still deepen," Guan Qingyou, chief economist at Minsheng Securities, told a recent seminar.
The International Monetary Fund expects China's economic growth to slow to 6.8 per cent this year and 6.3 per cent in 2016. "The mainstream view on the growth target is still around 7 per cent," said an economist at a well-connected think-tank. "But the pressure will be bigger given the complex global and domestic environment."