China Needs More Stimulus to Meet Growth Goal
China’s efforts to stimulate the world’s second-largest economy are insufficient so far to achieve the government’s growth target of about 7.5 percent, according to a survey of analysts.
Fourteen of 22 respondents to a Bloomberg News survey this month said China will need to “somewhat” increase stimulus to meet the 2014 expansion goal, even after growth accelerated to that pace in the second quarter. The property-industry slump poses the biggest risk to growth in the second half, 16 economists said.
Any additional steps would follow a mini-stimulus of sped-up infrastructure investment, tax cuts and moves to free up more money for bank lending. Premier Li Keqiang, coping with a 16.4 percent plunge in new property construction in the first half of this year, is trying to meet the growth target he announced in March without resorting to broad-based stimulus that may exacerbate debt risks.
“The mini-stimulus measures will be rolled out continually from now on, wave after wave, so the economy can be stabilized,” said Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong. She said the government will relax monetary policy, including a “more general” cut in banks’ reserve requirements, while avoiding interest-rate reductions.
China said last week that its gross domestic product grew 7.5 percent in the second quarter from a year earlier, with expansion from the previous period indicating an annual rate of 8.2 percent. Fixed-asset investment accelerated in June for the first time since August.
While economists at banks including JPMorgan Chase & Co., Citigroup Inc. and HSBC Holdings Plc raised their forecasts following last week’s data, the median estimates in Bloomberg’s monthly survey for growth this year were unchanged from June. Analysts still see the economy growing 7.4 percent in 2014, which would be the slowest pace since 1990.
On the stimulus question, seven analysts said the measures so far are sufficient to achieve the growth goal, according to the survey, which was conducted from July 16 to July 22. One said the steps will be so effective that the government will need to tighten policy in the second half, and none said China will need to “greatly” increase stimulus.
Of seven choices for the biggest risk to the economy, shadow banking was the second most-popular answer with three votes. One respondent cited a slowdown in developed markets, one said the government’s anti-corruption campaign and one said overcapacity in industries.
A report tomorrow will give one of the first indications of economic prospects for the second half. The preliminary manufacturing Purchasing Managers’ Index from HSBC and Markit Economics for July probably rose to 51.0 from June’s 50.7, based on the median estimate, with numbers above 50 indicating expansion.
Premier Li said last week that growth a little higher or lower than 7.5 percent is acceptable, according to remarks posted on the central government’s website. China will focus on targeted measures to manage growth, Li said.
Analysts are split over whether China will cut banks’ reserve requirements nationwide in the second half, with eight of 16 respondents forecasting at least a half-percentage point reduction by the end of the year. Twenty-two economists responding are unanimous that there won’t be a cut in the benchmark one-year deposit rate.
“We expect economic growth to slow again later in the year due to the weakness in real estate,” Qinwei Wang, China economist at Capital Economics Ltd. in London, said in an e-mail. “But further targeted measures will be rolled out in response, so annual GDP growth will come in close to 7.5 percent.”
A separate Bloomberg survey last week found that Chinese banks will probably offer discounted mortgage rates to their clients in the second half as housing demand weakens. Fifty-six percent of respondents forecast lower minimum down payments, while 59 percent said they expected the central bank to ease its mortgage restrictions. A total of 29 economists and analysts responded to that survey.
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