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China To Lower 2019 GDP Growth Target As Fears Of Economic Slump Intensify

Courtesy of ZeroHedge. View original post here.

As more signs of stress in the world’s second-largest economy emerged during the latter half of last year, factory orders and consumption indicators slumped and its housing bubble on the verge of bursting, China is expected to report later this month that its GDP expanded by 6.6% in 2018 – the weakest rate since 1990.

China

This is hugely problematic for the PBOC, which abandoned plans for a macroprudential deleveraging to slash taxes and boost bank lending last year to try and stabilize its economy. But in keeping with China’s legacy of economic goalseeking, in addition to redoubling its stimulus efforts in 2019, Beijing is reportedly planning to move the goal posts.

According to Reuters, China is planning to set a lower economic growth target of 6% to 6.5% in 2019, compared with last year’s target of “around” 6.5%, as Beijing braces for weaker domestic demand and more fallout from the US-China trade war.

The proposed target, to be unveiled at the annual parliamentary session in March, was endorsed by top leaders at the annual closed-door Central Economic Work Conference in mid-December, according to four sources with knowledge of the meeting’s outcome.

Data later this month is expected to show the Chinese economy grew around 6.6 percent in 2018 - the weakest since 1990. Analysts are forecasting a further loss of momentum this year before policy support steps begin to kick in.

As the world’s second-largest economy loses steam, China’s top leaders are closely watching employment levels as factories could be forced to shed workers amid a trade war with the United States, despite a more resilient services sector, policy insiders said.

Fortunately for the Communist Party, the country only needs to show 6.2% growth over the next two years to achieve its goal of doubling GDP in the decade to 2020. Achieving this would transform China into a “modestly prosperous” country.

No matter what happens, Reuters’ source said the Communist Party needs to show growth of “at least 6% this year” (and given China’s reputation for doctoring its data, we imagine this will be a self-fulfilling prophecy). Still, adopting such a wide range for its GDP growth target would give the Party “room to maneuver.”

CHina

Though China is revising its growth target thanks to signs of slowing growth, the same cannot be said for its inflation target, despite signs of weakening price pressures due to the weakening yuan (data this week showed China’s CPI slowed to 1.9%).

The government plans to maintain a 3 percent consumer inflation target for 2019 despite a recent softening in price rises, leaving some space for the government to stimulate weaker consumption.

The discussion about changing the GDP target reportedly took place during a Central Economic Work Conference meeting last month, where tax cuts and further stimulus were also discussed.

However, it’s important to keep in mind that China likely inflates its GDP figures, though one academic who recently suggested that growth in 2018 might have been below 2% was subject to an aggressive government censure.

That should tell you all you really need to know about growth in China.


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