The new lower growth target of about 6.5 per cent will require fiscal policy support, while lower targets for monetary supply and total social financing growth confirm a tightening bias.
" The new lower growth target of about 6.5 per cent will require fiscal policy support."
Raymond Yeung, Chief Economist, Greater China, ANZ
Speaking at at China’s National People’s Congress, Premier Li Keqiang reiterated the need to stabilise China’s economy while deepening “supply-side structural reforms”.
Further efforts will be placed on executing capacity reduction, deleveraging, reducing property inventory, lowering the cost of doing business and remedying weakness in certain segments.
Although the growth target is lower than the 6.5 per cent to 7 per cent set for last year, the achievement still requires policy support. Real gross domestic product growth of 6.5 per cent and an inflation rate of 3 per cent will likely translate into a nominal expansion of close to seven trillion renminbi in 2017.
Our current forecast is GDP will grow between 6.6 per cent and 6.7 per cent in the first half of the year, before a softening to 6.4 per cent in the second half.
As ANZ chief economist Richard Yetsenga told Bloomberg, the big questions remain around systemic risk.
“How [does] the shift from a debt-focused model to an equity focussed financing model [work]?” he said.
“Of course, the dynamics of the economy kind of determine how binding those constraints are. While growth is bouncing - and doing relatively well as it has been - those constraints are less worrying. “
The real concerns about China’s structural issues will come to the fore in the second half, Yetsenga said.
“I suspect through the middle part and the later part of this year, China will start to slow because liquidity is being tightened. And when you tighten in an economy with lots of leverage, growth will slow."