An unexpected signal from President Xi Jinping that China’s growth this year may slow more than the official forecasts have let on. Speaking informally at the Asia-Pacific Economic Cooperation meeting in Indonesia, he said that a 7% growth rate was “within a reasonable and expected range.” And, this Bystander expects, on plan. Xi dismissed any notions that China’s economy was facing a hard landing, saying that a “seven percent annual growth rate will suffice” to meet China’s medium-term goal of doubling per capita income by 2020. “The slowdown of the Chinese economy is an intended result of our own regulatory initiatives,” he said.
This Bystander also recalls the fuss in July when finance minister Lou Jiwei spoke of 7% annual growth for this year after the U.S.-China Strategic & Economic Dialogue. Xinhua swiftly added to the record the missing half a percentage point from this year’s official growth target. We doubt that in this case Xi misspoke (or that state media will do any after-the-event re-reporting of Xi’s words), and it should be noted, the president did not specifically forecast 7% as the growth rate for this year. That number is also the annual growth target in the current five-year plan. But it is the clearest public signal to date of where the leadership sees the economy headed.
Meanwhile, the World Bank has joined the caravan of those cutting their forecast of economic growth for China. In its latest semi-annual regional economic update, the Bank says it now expects GDP growth to be 7.5% this year and 7.7% next. That is down from 8.3% and 8% in its previous forecast published in April. The Bank expects the slowdown in China to cast its shadow over the region. It now forecasts growth for East Asia of 6.0% this year and 6.4% in 2014. That is down from 6.5% and 6.7% respectively in its previous forecast.
The Bank also highlights the increasingly conventional wisdom that China’s growth model of investment-heavy stimulus supported by credit expansion has run its course. Beijing must focus on containing the rapid growth of credit and tighten financial supervision, it says. The Bank remains concerned by the levels of local government debt and the rapid rapid expansion of the shadow banking system. This, the Bank said, posed “serious challenges”. The Bank also credits China with making some progress in rebalancing its economy, though “the economy has yet to make the decisive turn toward consumer-based growth”.