(Corrects sixth paragraph to say services gauge rebounded from five-year low, not record low.)
March 3 (Bloomberg) -- China’s Communist Party leadership faces a dilemma over where to set a growth goal for 2014 as President Xi Jinping wrestles with sustaining expansion while limiting debt risks, environmental damage and social unrest.
The target, set at 7.5 percent last year, will be announced at this week’s meeting of the National People’s Congress in Beijing. In a Bloomberg News survey, 63 percent of economists predict the same number this year, while 33 percent see either a 7 percent goal or a range, such as 7 percent to 7.5 percent.
China is pledging to shift away from growth at all costs as Shijiazhuang, Tianjin and Beijing choke on smog and an unprecedented build-up of debt threatens to trigger financial turbulence. At the same time, Xi also wants to avoid an excessively deep slowdown that saps confidence, after a manufacturing gauge sank today, the yuan turned volatile and an attack blamed on terrorists left dozens dead in Yunnan province.
“The government will maintain the target because it wants to anchor expectations and signal confidence,” said Wang Tao, a Hong Kong-based economist at UBS AG. “A lower target would be more prudent and help to reinforce the message that the government wants what it calls ‘growth without negative consequences.’”
Setting the goal at 7.5 percent, the government may feel obliged to “turn on the credit tap” if exports are weak and growth is suffering, Wang said. Gross domestic product increased 7.7 percent last year, the same pace as in 2012.
A gauge of Chinese manufacturing fell in February to an eight-month low, a government report showed on March 1, while a private index today from HSBC Holdings Plc and Markit Economics indicated a contraction worsened last month. Separately, a services index rebounded in February from a five-year low, according to official data today.
The Bloomberg News survey of 30 economists suggested that the government’s 2014 inflation target will be 3.5 percent, the same as last year.
Social tensions in China span farmers dispossessed by land seizures, citizens angered by pollution, ethnic divides, and the gap between billionaire entrepreneurs and rural citizens, who last year had an average annual income of 8,896 yuan ($1,448). In the March 1 attack in Kunming, scores of people at a railway station were stabbed in what the local government described as an assault orchestrated by Xinjiang separatist forces, the Xinhua News Agency reported.
“It’s not really important to set a GDP target, the important thing is to make normal people’s life better,” An Qi, a 21-year-old tour guide, said last week in the city of Yueyang in the central province of Hunan. “Apart from money, there are many other things that are valuable for life, like a good living environment.”
Her view contrasted with that of Beijing resident Yan Shuanghu, 57, who said that the economy was growing too slowly.
“The National People’s Congress should focus on improving ordinary people’s incomes,” Yan said, snapping stems from green beans as he sat in the midday sun outside his son’s restaurant. “The situation is not good for lower levels of society.”
The Shanghai Composite Index of stocks is down about 66 percent from a 2007 peak after slipping about 2 percent this year. The benchmark gauge rose 0.9 percent today amid speculation lawmakers will announce economic reform measures. The yuan was little changed today after tumbling the most on record against the dollar on Feb. 28 in anticipation that officials will widen the currency’s trading band.
The latest meeting of the legislature, the first to be overseen by Xi and Premier Li Keqiang, comes as leaders pledge to give markets a “decisive” role in the economy and alter incentives for local officials by assessing them on measures such as environmental protection and limiting debt, not just GDP growth.
Investors will be watching the NPC meeting for clues to the next steps to fix local-government finances, charge market prices for natural resources, rein in shadow-banking risks, free up deposit rates and open up state businesses to private investment.
A 7 percent growth target would be “more consistent with China’s longer-term development plan,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “The argument about whether the target should be 7 percent or 7.5 percent is about how to assess the impacts of reforms -- whether reforms can help short-term growth or sacrifice it,” Zhu said.
China’s top leaders are “still quite optimistic about the impacts on short-term growth from reforms -- they believe reforms can bring some new growth dynamics,” Zhu added.
In December, Chinese financial news provider Caixin reported that the GDP growth target had been set at 7.5 percent, saying that the decision was made at the central economic work conference that month.
“Xi won’t lower the target because he wants to stabilize the job market and boost social stability,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. who has worked for the International Monetary Fund and the European Central Bank. “Even though Xi has strong determination to push for structural changes, those have to take place in a stable social environment.”
To contact the editors responsible for this story: Paul Panckhurst at email@example.com Scott Lanman