China’s GDP growth target to reveal policy intentions

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So rarely does China’s official GDP growth target bear more than a passing resemblance to subsequent reality (see chart), that it might be regarded as a less than useful indicator.

This year, however, much is riding on which number – if any –Beijing announces as its GDP target for 2014 at the annual National People’s Congress (NPC), which convenes on Wednesday. There are several potential permutations, each of which may indicate very different policy intentions.

Mark Williams at Capital Economics in London says that a GDP target unchanged from 2013 at “about 7.5 per cent” would force policymakers to keep a closer eye on headline growth and “probably ease policy” if growth slows much from the 7.7 per cent it posted in the fourth quarter of last year.

Thus an “about 7.5 per cent” target would be seen by most analysts as a fairly dovish policy indicator, particularly given that growth in the first two months of the year is thought to have been relatively lacklustre.

There is a chance, though, that Beijing will not announce any clear number, preferring instead to identify a range, as Zhou Xiaochuan, the People’s Bank of China’s governor, has done recently in referring to 2014 GDP growth at between 7 and 8 per cent. Such a range might show Beijing is serious about reining in credit and industrial overcapacity, and may be willing to countenance GDP growth coming in at around 7 per cent for the year.

Nicholas Consonery, director, Asia at Eurasia Group, said: “A 7 per cent target would give Beijing more flexibility to focus on reform without undermining the credibility of its macro targets.”

A third permutation is one in which no “target” is named, with Beijing switching to a “projection” or “expectation” instead. This looser language might signal to regional and local officials that their performance will no longer be judged by the GDP growth they generate, but instead by other yardsticks, such as environmental protection, employment or inflation.

Several analysts said they expect the environment – and particularly the chronic air pollution in several large cities – to loom large, pushing the issue of overcapacity in certain key industries to the forefront of the agenda.

For instance, Mao Weiming, vice-minister of Industry and Information Technology, said in late February that the government will ban new projects in several industries – including steel, cement, aluminium, glass and shipping – before 2017 and will clean up existing projects found violating rules.

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