China 7.5% Target Seen in Reach as U.S. Demand Picks Up: Economy

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Photographer: Kevin Lee/Bloomberg

A bicyclist rides past a highway overpass lit up at night in Shanghai.

China will achieve the government’s 7.5 percent growth target this year as the world’s second-biggest economy stabilizes after a two-quarter slowdown, a Bloomberg News survey of economists indicates.

The poll of 52 analysts, conducted from Aug. 15 to Aug. 20, points to China maintaining that pace of expansion in 2014. The survey also suggested that the central bank will widen the yuan’s trading band before year end.

A strengthening U.S. economy and Europe’s nascent recovery are improving the outlook for demand for goods from China, the world’s biggest exporter, as Premier Li Keqiang grapples with containing financial risks. The survey results contrast with expressions of concern including Barclays Plc economists saying last month that quarterly growth could drop briefly to as low as 3 percent at some point in the next three years.

“The main support for the economy is that exports should start to pick up later in the year as the global economy regains some speed,” said Louis Kuijs, Royal Bank of Scotland Group Plc chief China economist in Hong Kong. “The key risks to the relatively benign outlook are a weakening of growth in emerging markets and if China doesn’t do enough fiscally to offset a firmer monetary stance.”

Photographer: Qilai Shen/Bloomberg

A man cycles through a tunnel under a parked high-speed rail bullet train at a rail maintenance center on the outskirts of Shanghai. China's economic support measures announced so far have included boosting railway investment. Close

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Photographer: Qilai Shen/Bloomberg

A man cycles through a tunnel under a parked high-speed rail bullet train at a rail maintenance center on the outskirts of Shanghai. China's economic support measures announced so far have included boosting railway investment.

In the U.S., the Federal Open Market Committee today will release minutes of its July 30-31 meeting, with investors and analysts looking for clues on when central bankers plan to reduce $85 billion in monthly asset purchases. Weakness in China’s economy and the prospect of the Fed cutting stimulus have prompted capital to flow out of emerging markets.

Credit Boom

The Shanghai Composite Index (SHCOMP) is up about 6 percent from this year’s low in June, when an inter-bank lending squeeze jolted the nation’s banks. China’s policy makers are wrestling with a credit boom that has fueled property prices and added to banks’ bad-loan risks. The State Council last month ordered the first nationwide audit of government debt in two years.

A majority of the analysts polled said that the People’s Bank of China will widen the yuan’s trading band before the end of this year, with most of that group saying that the change will take place in the fourth quarter.

While Barclays said last month that China faced some risk of a “hard landing,” the bank forecast 7.4 percent growth for this year and next year, similar to the median estimate in the latest Bloomberg survey.

Railway Spending

Economic support measures announced so far have included boosting railway investment. Investors are looking ahead to a meeting later this year where the Communist Party’s new leaders may unveil a blueprint for policy measures to sustain growth in coming years as higher labor costs and a shrinking working-age population weigh on the pace of expansion.

The survey indicated that the central bank will limit monetary stimulus. Median estimates show the one-year lending and deposit rates and reserve requirements for the nation’s largest banks unchanged through the first quarter of 2015.

In economic news around Asia and the world today, Thailand and Iceland will set interest rates, Malaysia reports gross domestic product for the second quarter, and the U.S. releases home-sale and mortgage-application data.

To contact Bloomberg News staff for this story: Cynthia Li in Hong Kong at cli205@bloomberg.net Ailing Tan in Singapore at atan193@bloomberg.net Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net; Kevin Hamlin in Beijing at khamlin@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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