Friday, July 12, 2013

China can endure growth slowdown to 6.5%, finance chief says

By Bloomberg News

Chinese Finance Minister Lou Jiwei signaled the world’s second-biggest economy may expand less than the government’s target this year and that growth as low as 6.5% may be tolerable in the future.

While the government in March set a 2013 growth goal of 7.5%, Lou said he’s confident 7% can be achieved this year. He spoke yesterday at the U.S.-China Strategic and Economic Dialogue in Washington. The nation’s broadest measure of credit fell to a 14-month low in June during an interbank cash squeeze, central bank data showed today.

Lou’s comments suggest China is prepared to allow a further slowdown from a rate that’s already at risk of falling to a 23-year low this year as Premier Li Keqiang focuses on policy changes to create more sustainable expansion. Li said this week that the government should keep restructuring the economy as long as growth, employment and inflation stay within limits he didn’t specify.

“We don’t think 6.5% or 7% 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.”

He said, “please don’t forget that our expected GDP growth rate this year is 7%.” adding that “there won’t be much of a problem to meet our expectations this year.”

Growth Targets

Lou’s remarks may add to confusion over the government’s growth targets and tolerance levels. Li said in May that the nation seeks 7% annual expansion this decade. He said at a March 17 press conference, his first after becoming premier, that China must average 7.5% growth through 2020. State- media transcripts of the briefing that day said Li gave a 7% figure.

China’s current economic growth is within a “reasonable range” of 7 to 8%, the official Xinhua News Agency said today in a report posted on the State Council’s website. The job market will not be significantly affected if growth does not fall below 7%, Xinhua said, citing unidentified analysts.

China hasn’t changed the official 7.5% expansion target for this year, Market News International reported today, citing government sources it didn’t identify.

The news office at the Ministry of Finance in Beijing didn’t immediately respond to faxed questions on Lou’s remarks.

The nation’s stocks had their biggest two-day rally in 18 months through yesterday, amid speculation that authorities will take measures to bolster growth after Li’s comments on economic restructuring and parameters. The Shanghai Composite Index closed 1.6% lower today.

False Rally

“To have said 6.5% seems like a new line in the sand,” said Tim Condon, head of Asia research at ING Groep NV in Singapore, who formerly worked at the World Bank. “It may well be that they don’t want people to be suckered into a false stock-market rally.”

The comment “reinforces the reform credibility of the new administration,” Condon said.

M2 money supply rose 14% in June, the People’s Bank of China said today in Beijing, down from a 15.8% pace in May, the biggest slowdown in more than two years. A cash squeeze designed to stamp out speculation sent interbank borrowing costs to the highest in at least a decade.

Aggregate financing, the government’s broadest measure of credit, was 1.04 trillion yuan ($169 billion), down from 1.78 trillion yuan in June 2012. New yuan loans were 860.5 billion yuan, accounting for the largest share of aggregate financing since September 2011.

Yi Gang, deputy governor of China’s central bank, said the nation’s money market has recovered to normal levels and the financial market is stable. “At the moment, the tension has been relieved,” Yi said at a separate press briefing in Washington.

GDP Report

The statistics bureau reports second-quarter gross domestic product on July 15, with the median estimate of analysts for a 7.5% increase from last year. First-half expansion was probably below 7.7% “but not too far from it,” Lou said.

Lou ruled out the possibility of widening the budget deficit to stimulate the economy. Instead, policy makers have decided to cut the spending of central government agencies by 5%, and may use the savings to reduce taxes or increase spending on measures to support jobs and growth, he said.

“I want to emphasize that the structural economic adjustment is a painful process,” Lou said. “It won’t be possible to enjoy a comfortable life and a rapid growth rate with the structural adjustment.”

Lou said China shared its plan for further reforms with U.S. officials during the meetings, Lou said.

Shipyard Aid

China Rongsheng Heavy Industries Group Holdings Ltd., the nation’s biggest shipyard outside state control, said this month it’s seeking financial help from the government, as the nation’s shipowners association forecast a slump in vessel orders will run through next year.

Macquarie Group Ltd. today lowered its 2013 China growth forecast to 7.3% from 7.8%, and to 6.9% in 2014 from 7.5%. The median projection of 56 analysts in a Bloomberg News survey last month was for 7.7% expansion this year.

China’s economy expanded less than 8% last year for the first time since 1999.

The slowdown is “necessary” to achieve a structural transition, Lou said, adding that the government is deepening reforms in areas including public financing and financial services to achieve more sustainable growth.

Approval Requirement

Zhang Zhiwei, chief China economist at Nomura Holdings Inc., said Lou’s comments spurred investor inquiries over whether the 2013 growth target has been cut to 7%. That’s unlikely because the goal was approved four months ago and Li has failed to mention any revision, which may require approval from the National People’s Congress, Zhang said in a note today.

Lou said the job market is stable as preliminary data for the second quarter show employment outgrew job seekers. While college graduates have difficulty finding jobs, skilled technicians are in short supply, reflecting the structural problems, he said.

Chen Xingdong, chief China economist at BNP Paribas SA in Beijing, said Lou’s comments indicate that the “bottom for the year to come might be 6.5 percent” and that the finance minister was probably referring to medium and long-term growth.

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