Tag Archives: Lou Jiwei

China Sets A Fudgable 2014 Growth Target

CHINA HAS SET its official growth target for the year at 7.5%. There is no great surprise to Primer Minister Li Keqiang’s announcement of the number at the National People’s Congress, or in the target inflation figure of 3.5%. The growth target would mark a slight slowing from 2013’s 7.7%.

Finance minister Lou Jiwei (below), no stranger to public slips of the tongue, says GDP growth of 7.2% or 7.3% would achieve the target, confirming the risks are on the downside, and that suggestions that credit expansion incompatible with rebalancing will be necessary to support 7.5% growth may be misguided. But Lou also highlighted the critical importance of job creation, saying that that rather than the exact growth number is key.

That, in turn, suggests the link between unemployment and social instability is uppermost in the leadership’s mind. GDP growth will become an increasingly unreliable proxy for the Party’s objectives of maintaining public order in the face of growing popular concern about social and environmental issues and of sustaining the legitimacy of its monopoly political rule. The upside is that that could make the number more accurate as there would be less need to massage it to meet political goals.

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China Picks Up The Half A Percentage Point Of GDP Growth Its Finance Minister Dropped

Xinhua has added half a percentage point to the 7% GDP growth for the year finance minister Lou Jiwei talked of at a Washington press conference on Friday after the U.S.-China Strategic & Economic Dialogue. “There is no doubt that China can achieve this year’s growth target of 7.5%,” the state news agency now reports the minister as having said.

This Bystander can forgive anyone a slip of the tongue. Nor is Lou the first politician to need the services of a clean-up crew. As we noted yesterday 7% is the annual GDP growth target in the current five-year plan, even if 7.5% is the official target for this year. Half a percentage point either way on the GDP growth number does nothing to alter the trickiness of the balancing act the leadership has to pull off in lowering long-term growth expectations for China while making the necessary structural fixes to the economy to prevent years of hyper-rapid credit expansion and of the shadow banking system from bringing growth to a halt with a hard crash.

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China’s GDP Growth: Feel The Quality Not The Width

China’s leaders have long made a habit of under promising on growth while over delivering. In the double-digit growth decades, GDP growth usually came in, surprise, surprise, handily above the official target rate.

Even as the process of decelerating growth to a more sustainable pace has taken hold over the past few years, official targets have been set at lower than likely outcomes. The current prolonged slowdown of the global economy allied to the willingness of the new leadership to push ahead with necessary structural reform (“rebalancing”) of the economy even at the expense of propping up GDP growth requires expectations and targets to be lowered yet again.

The immediate timing of finance minister Lou Jiwei’s comments in Washington that Beijing may be willing to tolerate economic growth in the second half of the this year of less than 7% may be driven by the imminence of the release of the second-quarter GDP figures on July 15; these are expected to show a further slowing from the first-quarter’s 7.7%. But they fit into a pattern of statements from senior officials that seek to send a domestic message that slowing growth is part of the Party’s management of the economy to take China to the necessary next phase of its development.

At the same time, the country’s economic managers have  to ensure that slowing growth doesn’t generate  social unrest that could pose a challenge to the Party’s political authority. This process of expectations setting is well underway. Seven percent is the target annual growth rate across the current (2011-15) five-year plan, don’t forget, even if 7.5% is the target for this year (which implies a contingency allowance for some sub-7% growth years ahead).

It is an exercise in managing a soft landing as opposed to a hard crash. The immediate threat of slowing growth to stability would be a spike in unemployment leading to social unrest. Yet, remember, too, how for years, 8% GDP growth was held to be the magic number below with growth couldn’t be allowed to fall or society would collapse in mass unemployment. Yet the growth rate has slipped below 8% without those dire consequences coming true.

The bigger risk to stability (as Beijing is well aware) is the consequences of over-investment and the huge expansion of the shadow banking system blowing up. It will take the rebalancing structural reforms to defuse those threats. They, in turn, will take time to put in place.

Beijing, meanwhile, has a nuanced message to deliver. For decades a simple GDP growth number — the higher the better, but always met if you didn’t peer too closely under the hood — was how it communicated that it was delivering the increasing living standards for all Chinese on which the legitimacy of its monopoly on power rested. Now it has to emphasize that the quality of growth is more important than the quantity. Less is more will be a new experience for a couple of generations — of citizens, officials and investors — which have only known more to be more.

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Ding Xuedong: Half A Trillion Dollar Man

Ding Xuedong is little known outside Chinese political circles but considered a rising star within them. The same could have been said of Lou Jiwei, his predecessor as head of China’s $480 billion sovereign wealth fund, China Investment Corp. (CIC), when he took on the job.

Lou moved up to finance minister in March. The three-month gap in filling the last of the “big” finance vacancies in Beijing as a result of the leadership transition, has spawned rumors that the appointment had become another sparing ground between economic reformers and the Party old guard. But it is also the case that several prospective candidates turned the position down, fearing that inheriting Lou’s investment portfolio might turn out to be a poisoned chalice.

The 53 year old Ding, who is expected to be formally named to the job shortly, is currently a senior State Council official. There, he has worked with new prime minister Li Keqiang. Before that, he was a vice minister at the finance ministry, where he has spent most of his career, much of it concerned with agricultural finance. Not the most obvious background for someone who will have half a trillion dollars of assets to manage in international capital markets. But then Lou didn’t have that either when he launched CIC in 2007.

The question occupying asset managers, now they have a name, will be the extent to which Ding may reorient CIC, the world’s fifth-largest sovereign wealth fund, away from the natural-resource and energy investments favored by Lou (and central government) and towards alternative assets and direct investment in developed economies — at a time when attitudes in America and Europe against such state-backed investment are hardening.

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China’s New Top Economics Team Picked To Push Reform

China’s new top economics team comprises horses for courses. Collectively they signal the intention of the new Xi-Li leadership to push ahead with economic reform. Individually they bring particular expertise that will be needed to overcome what are emerging as the biggest obstacles of reform, state-owned enterprises and local government.

Zhou Xiaochuan, as expected, will continue as governor of the People’s Bank of China. Regarded as the architect of financial markets liberalization since taking over as head of the central bank in 2002, he will likely drive forward further opening of the capital account and the internationalization of the yuan. The PBOC has long been thought to have pencilled in 2015 as the date for full convertibility of the currency. Zhou’s task will be to continue with lifting capital controls, liberalizing interest rates and developing capital markets.

Lou Jiwei becomes finance minister. The former head of the country’s sovereign wealth fund was also the architect of China’s tax reforms in 1994. His task will be to lift the tax burden on small and private firms, seen as important drivers of rebalancing the economy towards more domestic consumption, and to reform local-government finances so local officials cease to be reliant on land sales for revenue, and all the cosy dealing that goes along with that.  His objectives may be the politically most difficult facing the quartet.

Xu Shaoshi takes over as economic planner-in-chief as head of the Natinoal Development and Reform Commission. A former land and resources minister, his piece is to steer strategic investment away from spend-and-build real-estate plays and towards productive infrastructure.

Gao Hucheng, as commerce minister, doesn’t have the same scale of reforming role, but he will have to oversee the country’s exporters, moving them up the value chain and making sure that they don’t become an obstacle to reform as the economy rebalances away from being export- and infrastructure investment-led. At the same time he will have to deal with potentially increasingly tetchy trade disputes, both with China’s two biggest trading partners, the EU and the U.S., and with its regional neighbors, and with a patchwork of free trade agreements being negotiated in all directions. That potentially gives him both stick and carrot when it comes to domestic interests.

The sharp end of reform will be making China’s interest rates and currency more market driven and to open up the capital account. Expanding capital markets would end subsidised access to funds for state-owned enterprises. Expanding revenue-raising options beyond property development that local government officials have for years used to generate the local economic development on which their promotion depends, would cut to the heart of a massive web of  kickbacks and cosy deals with local developers.

The drive appears to be getting backing from the top.  Li Keqiang, in his first press conference as prime minister, warned that vested interests would be tackled. President Xi Jinping gives every impression he understands that reform is necessary to put China’s economy on a more stable long-term footing – and thus keep the Party in power. Vested interests and political hardliners are still to be convinced.

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