China: Where 7.5% can be 7.2% or 7.3%

China's Finance Minister Lou Jiwei has said that the country's 2014 GDP growth goal of 7.5% is not a cast iron target.

"Let's say for instance, this year's economic growth is not 7.5%, but 7.3% or 7.2%. Does this count as around 7.5%? Yes, it counts," said Lou.

"Whether GDP growth is to the left or to the right of 7.5%, that is not very important. What is important is job creation," Lou added.

The government aims to create 11M jobs this year.

"This flexibility allows them to flag an encouraging number to the business community but at the same time to feel free not to react with stimulus and more debt if it's missed a bit," says Credit Agricole economist Dariusz Kowalczyk.


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Comments (3)
  • Philip Marlowe
    , contributor
    Comments (1573) | Send Message
    Yeah, that was expected. Anyways, large maturing economies just do not grow that fast. It is more important for China to to ensure that their businesses and government units can handle their credit without a crash than to hit that growth target.
    6 Mar 2014, 02:45 AM Reply Like
  • omooc
    , contributor
    Comments (345) | Send Message
    I generally enjoy reading SA essays. But today's headline for this thread "China: Where 7.5% can be 7.2% or 7.3%" is objectionable; indeed, misleading. Using the same technique, one may, perhaps, write: "U.S.A.: Where unemployment rate of 6.2% can be 9.5% or 14.2%." Enough said.
    6 Mar 2014, 08:43 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1836) | Send Message
    As developed countries with aging populations largely unprepared for retirement struggled under the weight of debt and a financial crisis caused by the bursting of a debt-fueled housing bubble, economic growth came to an abrupt halt. This introduced heightened risks of rapid deleveraging that could spur further declines in asset prices and a negative wealth effect that would reduce consumer spending and usher in a long painful period of deflation similar to that endured by Japan.


    In an effort to combat this, governments issued debt to replace toxic assets littering the banking system and central banks around the world attempted to reflate asset prices. However, all of this would not have been enough to restore global economic growth had it not been for China's huge ramp up of Fixed Asset Investment spending that propelled their GDP from $3 trillion in 2008 to over $9 trillion today, half of which constitutes Fixed Asset Investment spending. This spending also drove up demand for commodities that fueled economic growth in commodity exporting countries around the world, particularly emerging markets. So, for this reprieve from the forces of deflation, we largely have China to thank.


    But, the question to ask is whether China's unbalanced growth model that relies so heavily upon debt fueled Fixed Asset Investment spending that often results in capital being misallocated to create excess production capacity, unoccupied or unused housing and shopping centers, and infrastructure that is unaffordable to the population outside the export-oriented coastal areas where incomes are so low that the average annual per capita GDP for all of China is still only about $6,000. The sustainability of this model is further called into question by the fact that China's imbalanced economy also contributes to an imbalanced global economy, and stokes further government and central bank interventions on the back of even higher debt levels. In other words, how long can a stable disequilibrium truly last?


    What is needed is not simply GDP growth, but rather increased consumer demand to replace that lost by aging baby boomers, the ranks of the unemployed, and all those who don't comensurately benefit central bank efforts to reflate asset prices. In fact, these large segments of the population suffer from low yields on bank savings deposits and higher rent costs as landlords pass along their higher ownership costs and rising home prices put home ownership further out of reach as an alternative to renting a home.


    The announced emphasis that The CCP and their rubber-stamp Congress now intends to place on increased employment in China seems to be a step in the right direction, but to the extent that this comes at the expense of jobs in other parts of the world where wages and standards of living are higher so there is a higher propensity to spend, this may serve to reduce global consumer demand in the near-term. An equalization of labor costs around the world might eventually serve to address this, but the prospect of lower wages and standards of living in developed countries, devalued currencies that can also reduce the purchasing power of all citizens of those countries [unless they maintain most of their assets elsewhere], and the prospect of lower profits for non-Chinese companies as technology is "transferred" to Chinese companies that can then provide more Chinese with higher paying jobs in high tech industries is likely to meet some resistance along the way.
    6 Mar 2014, 09:05 AM Reply Like
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