MIL OSI – Source: China State Council Information Office – China cuts growth goal to 7%

The People’s Bank of China has lowered its full-year GDP growth forecast to 7 percent from the previous estimate of 7.1 percent issued in December as first-half economic momentum turned out to be weaker than expected.

“But we have reason to expect some modest recovery in sequential growth in the second half,” said the updated mid-year report by the central bank.

The PBOC also slashed its forecast for consumer price inflation to 1.4 percent from 2.2 percent previously. And it cut a number of other key forecasts:
・ Exports: To 2.5 percent growth from 6.9 percent previously.
・ Imports: To a 4.2 percent contraction from growth of 5.1 percent.
・ Fixed-asset investment: To a rise of 12.6 percent from 12.8 percent previously.
・ Retail sales: To a growth of 10.7 percent from 12.2 percent.

Overall economic conditions are worsening because of a faster-than-expected slowdown of exports and real estate investment, with the lowest indicators since the global financial crisis in 2008, Ma Jun, the central bank’s chief economist, wrote in the report.

“Recently, the nonperforming loan ratio has been rising and commercial banks have become more cautious about lending, especially to producers of coal, steel, construction materials and companies involved in export-oriented manufacturing and real estate,” Ma said.

The PBOC did, however, forecast that the positive effects of already-announced policies will become evident starting in the third quarter.

Recoveries in the United States and European economies are likely to support China’s export rebound. In addition, the rise of housing prices since April will accelerate property investment, according to the report.

Major economic figures for May are scheduled to be released by the National Bureau of Statistics on Thursday, and analysts’ consensus is for some slight improvement.

Credit ratings agency Moody’s Investors Service Inc released a report on Wednesday, saying that the number of companies in China in financial distress will rise as slower domestic economic growth and the government’s reform agenda, intended to allow markets to play a “decisive” role, expose overstretched balance sheets in the corporate sector.

“But policy easing and government support will prevent rising corporate distress from escalating to a level that would cause systemic risk to the onshore and offshore markets,” it said.

It added: “Room is also available for a further loosening of monetary policy should macroeconomic conditions continue to deteriorate, given that real lending rates and the reserve requirement ratio remain high.”

Compared with other emerging markets, China has a more stable economic foundation, so the expected move by the US Federal Reserve to raise interest rates will have merely a limited impact on the country’s financial system, the PBOC report said.

However, capital outflows and currency depreciation in other emerging economies may cut China’s exports, it said.

 

Selwyn Manning, BCS (Hons.) MCS (Hons.) is an investigative political journalist with 23 years media experience. He specializes in reportage and analysis of socioeconomics, politics, foreign affairs, and security/intelligence issues. Selwyn has extensive experience as a commentator and has provided live political analysis to a wide range of television and radio organizations broadcasting in New Zealand, Australia and globally including the BBC (Five Live, London) and BBC (World Service). He is currently a correspondent to Australia's FiveAA radio, and is a regular live-on-air panelist on Radio New Zealand's The Panel with broadcaster Jim Mora.