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Experts see slower China GDP growth
Publication Date : 19-12-2013
While China's official growth target for next year has not been revealed, prominent economists are forecasting a dip from this year's projected 7.6 per cent as painful reforms filter through the economy.
The easing should happen if China follows through with moves needed to shift the world's No.2 economy away from an investment- and export-led model to one driven by domestic consumption, economists said at the start of a two-day summit held by the influential Caixin financial magazine in Beijing. The annual conference brings together 1,200 leaders from various fields.
Shen Minggao, Citibank's chief economist for Greater China, told a panel that a 7.3 per cent gross domestic product (GDP) rate next year was likely.
"From the market's perspective, a slower growth rate is not necessarily a bad thing. Investors prefer a GDP of 7 per cent with reforms as opposed to GDP of more than 7.5 per cent, but with fewer reforms," he said.
HSBC co-head of Asian economics research Qu Hongbin similarly predicted a milder 7.4 per cent growth due to "short-term pain", while Tatsuhito Tokuchi, chairman of the investment banking committee of CITIC Securities, expected growth in the 7 per cent to 7.3 per cent range.
While exports are expected to pick up in tandem with the economic recovery in Europe and the United States, and domestic consumption might increase, investments in infrastructure and real estate are likely to slow. This could drag down overall growth, Tokuchi said.
Last year, China cut its annual GDP growth target for the first time in eight years to 7.5 per cent, from 8 per cent.
Now, investors are again closely watching next year's GDP target as a sign of Beijing's commitment to rebalancing the economy on the back of ambitious reforms unveiled at a key policy summit last month, noted Wang Tao, UBS Investment Bank head of China economic research.
Some observers predicted a further lowering of the target to 7 per cent to leave room for reforms that might slow the economy temporarily as the switch towards stable and quality growth is made.
"A very important area for breakthrough is to avoid setting an excessively high GDP target," Wang said. "If this emphasis is not reduced, reforms such as tackling overcapacity, local government debt or environment degradation will be at risk as they all have a negative impact on GDP."
But she said she has a more optimistic growth target of 7.8 per cent for next year.
Economists pointed to a range of reforms such as tax, land and political decentralisation as the most vital. "Many of the reforms are interconnected, but not all can be done next year," said Tokuchi.
Stanford University's Professor Ronald McKinnon cautioned that currency and capital account liberalisation could cause problems in the light of low interest rates globally.
The growing inequality could be another concern.
Economics Professor Per Krusell of Stockholm University said in his keynote address that a modern welfare state, which promotes economic efficiency, could be beneficial for China, and is in line with its recent reform plans.
"This is increasingly important in the face of structural transformation and market forces that could lead to increasing inequality," he said.