China Hints At Growth Below 7%

Chinese finance minister Lou Jiwei said growth in the world’s second largest economy may dip below 7 percent in the second half of the year, signalling that Beijing may tolerate a slower pace of expansion than officials have previously indicated.

Lou, speaking yesterday at the U.S.-China Strategic and Economic Dialogue in Washington, added that he is confident of achieving a growth rate of at least 7 percent this year, though 6.5 percent growth would not pose a “big problem”.

Chinese finance minister Lou Jiwei said growth in the world’s second largest economy may dip below 7 percent in the second half of the year, signalling that Beijing may tolerate a slower pace of expansion than officials have previously indicated.

Lou, speaking yesterday at the U.S.-China Strategic and Economic Dialogue in Washington, added that he is confident of achieving a growth rate of at least 7 percent this year, though 6.5 percent growth would not pose a “big problem”.

“We don’t think 6.5 percent or 7 percent will be a big problem,” Lou said at a press briefing in response to a question on whether there’s a limit on slower growth that officials will tolerate. “It’s difficult to give you a limit. But from the data we have, we have the confidence.”

Lou denied that China’s economy is headed for a hard landing, but stressed that the slowdown is “necessary” for economic restructuring. “Despite the slowdown of China’s economic growth rate, the structural reform is paying off,” he said, adding that the government is deepening reforms in areas including public financing and financial services to achieve more sustainable growth.

“The contribution of consumption to GDP growth has increased, the proportion of service sector to GDP has also enhanced, the ratio of current account surplus of GDP has dropped, employment situation is good, and CPI is not high,” said Lou.

His remarks echo comments earlier this week by Premier Li Keqiang, who has been pushing long-term reform over growth speed. “As long as the economic growth rate, employment and other indicators don’t slip below our lower limit and inflation doesn’t exceed our upper limit [we’ll] focus on restructuring and pushing reforms,” Li said in a statement posted on the central government website on Wednesday.

Chinese authorities, worried about over-investment and strong growth in informal lending, have indicated they are prepared to tolerate slower economic growth rates as they drive through structural reforms.

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But analysts say it is unlikely the government will adjust its official 2013 growth target of 7.5 percent any time soon. “A revision of the official growth target may require National People’s Congress approval, so we regard the quote with caution and wait for any clarification from the government,” said Zhiwei Zhang, economist at Nomura in Hong Kong, in a note.

In an interview with the Wall Street Journal, International Monetary Fund chief economist Olivier Blanchard on Thursday said he is not worried about a slowdown in China.

“China made too much investment [in its economy], and they want to tune it down … It could be worse, but they won’t let it go down too much,” Blanchard said, adding that he doesn’t expect a hard landing or a sharp slowdown in the country.

In May, the IMF lowered its full-year growth outlook for China by 0.25 percentage points to 7.75 percent, warning that Beijing needs to make a “decisive push for rebalancing toward higher household incomes and consumption,” a shift that would nurture “more balanced” and “inclusive” growth.

“They need continued liberalisation and reduced government involvement [in the economy], allowing a greater role for market forces,” it added.

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