China will speed up construction projects and other measures to support the economy after a slowdown in industrial-output and investment growth boosted risks of missing this year’s expansion target.
The nation will “seize the moment to roll out already-determined measures in expanding domestic demand and stabilizing growth,” the State Council, or cabinet, said in a statement last night after a meeting. China will “accelerate preliminary work and construction on key investment projects with timely assignment of budgeted funds,” it said.
The statement suggests the depth of the slowdown is testing Premier Li Keqiang’s tolerance for growth below what he says is a flexible target of “about” 7.5 percent. A gauge of Chinese companies listed in Hong Kong entered a bear market today, the yuan fell the most since 2008 and Goldman Sachs Group Inc. projected a 5 percent annualized pace of expansion this quarter.
“Against the background of increasing downward pressure on growth, the pro-growth signals from the meeting are very timely and necessary,” Xu Gao, chief economist with Everbright Securities Co. in Beijing, said in a note. “Measures to stabilize growth will materialize gradually to cause a modest acceleration in growth,” wrote Xu, who formerly worked at the World Bank.
The stock gauge, the Hang Seng China Enterprises Index, dropped 1.7 percent today, extending its retreat from a Dec. 2 high to 20 percent. The CSI 300 Index of mainland-listed shares sank 1.6 percent to a five-year low, while the yuan weakened 0.5 percent to 6.2275 per dollar, the lowest close in more than a year.
Goldman Sachs today lowered its first-quarter projection for quarter-on-quarter annualized expansion from 6.7 percent. It also cut its full-year forecast to 7.3 percent from 7.6 percent.
“More targeted fiscal support” including tax relief and subsidies “is needed to manage the downside risks of the economy and support consumption,” economists led by Cui Li in Hong Kong wrote in a report.
Analysts have cut their forecasts for China’s expansion, with the median estimate in a Bloomberg News this month for the first quarter dropping to 7.4 percent from 7.6 percent in February. For the full year, the median projection slipped to 7.4 percent from 7.5 percent. The survey was conducted from March 14 to March 19.
More analysts are forecasting that China will loosen monetary policy to counter the slowdown. Eleven of 21 economists surveyed this month see a cut in banks’ reserve-requirement ratio in 2014, compared with six out of 18 analysts in February.
China will strive to meet economic targets this year and will try to keep growth within a “reasonable” range, according to the statement from the State Council meeting, its first since the annual meeting of the National People’s Congress ended March 13.
Data released earlier this month showed fixed-asset investment expanded at the slowest January-February pace since 2001 and retail sales showed the weakest gain for the period since 2004. Industrial production for the first two months rose 8.6 percent from a year earlier, compared with the 9.5 percent median estimate of economists.
Li said last week that there’s some flexibility around the nation’s target for gross domestic product growth, without specifying how much of a slowdown leaders will tolerate.
“Since we say the GDP growth target is about 7.5 percent, ‘about’ means it has a certain degree of flexibility,” Li said at a press briefing in Beijing on March 13, adding that the government’s key concerns are jobs and livelihoods. “A bit higher or a bit lower, we have a level of tolerance here.”
Finance Minister Lou Jiwei said earlier this month that growth as low as 7.2 percent would meet this year’s target of “about” 7.5 percent and that the key is employment, not the exact level of growth.
Ma Jiantang, head of the statistics bureau, said China’s economy is “off to a good start” for the year with major indexes at “relatively high levels,” according to a March 14 article in People’s Daily, the Communist Party newspaper. He said he’s confident that China can achieve 2014 targets and that employment in the first two months was “good,” according to the paper.
Premier Li, who led the cabinet meeting, is also dealing with challenges that include pollution, surging debt and increasing risks of defaults in financial products and companies.
Officials from People’s Bank of China and China Banking Regulatory Commission branches in the eastern city of Ningbo attended meetings this week on how to contain risks from the collapse of Zhejiang Xingrun Real Estate Co., a developer with 3.5 billion yuan ($563 million) of debt, according to three government officials with knowledge of the matter.
Shanghai Chaori Solar Energy Science & Technology Co. became the first onshore bond issuer to default this month. In January, a near-default was averted when a 3 billion-yuan China Credit Trust Co. product that lent money to a collapsed coal miner was bailed out.
— With assistance by Xin Zhou