China's GDP Target of "Around" 7%

February 1st, 2015
in econ_news, syndication

Written by , GEI Associate

According to various media reports, Chinese government departments, and China's central bank, China GDP growth rate in 2015 may be cut to "around" 7% which is the lowest since global financial crisis in 2008.

Follow up:

The growth target is set to be announced by Chinese Premier Keqiang Li at the annual parliament session in March. It is believed that the 7% target would be the bottom line to Chinese government - but the 7% was not meant as an exact number.

There seems two main reasons that will throttle the growth of Chinese GDP.

  • Slowdown in real estate investment: The deceleration of Chinese economic expansion is mainly because of the continuous slowdown in real estate investment. According to the forecast by JPMorgan Chase, Chinese growth rate of real estate investment in 2015 may be around 5% to 6%, which further slows down compared with that in 2014. The continuous downside trend in real estate investment will cause further pressure to the demands of land sales and relevant industries.

  • Excess production capacity: Due to the situations that foreign market demand is hard to rise significantly; domestic demand is stable in the recent several years; the relative shortage of technological innovation, the excess investment in productions brings too much supplies in Chinese market. Xuesong Li, the deputy director of Institute of Economics in Chinese Academy of Social Sciences, analyzed that although China has achieved positive results in defusing the problem of excess production capacity in recent several years, the problem is still one of the main factors to restrain Chinese economic operation in 2015 because the excess supplies are long-term accumulated and there still have some more new production capacity being released from past investments.

Nevertheless, although it is a consensus that Chinese GDP growth will slow down in 2015, most of economists deem the rate will not drop below 7%. Yang Yao, the dean of National School of Development at Peking University, states that Chinese economy has entered into transitional period. During the period, it is normal to perform that economic growth slows down; service industry becomes the leading industry in Chinese economy; domestic demands become more and more important; income distribution is improved. He also deems that it is no problem to maintain the growth rate between 7% and 7.5% after the promotion of labor efficiency.

Furthermore, Andrew Tilton, chief Asia Pacific economist in Global Investment Research at Goldman Sachs, proposes that the key points for Chinese policymakers to manage the economy are to stabilize labor market and move forward on structural reforms.

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