China’s Provinces Trail Growth Targets in Slowdown Signal

Most Chinese provinces reported first-half growth below annual targets that in some instances were already lower than last year’s goals, underscoring the breadth of the nation’s slowdown.

Seventeen of 30 provinces and provincial-level cities said January-to-June expansion trailed 2013 targets, compared with 14 of 31 in last year’s first half, according to data compiled by Bloomberg News. Inner Mongolia, Jilin and Ningxia had the widest gaps, each at 3 percentage points below a 12 percent target. One province, Qinghai, has yet to release its latest figures.

The statistics highlight the risk of missing the year’s nationwide 7.5 percent expansion goal as official concern over local-government financing threatens to curb funding for investment. China’s State Council, led by Premier Li Keqiang, this month ordered an audit of government debt, underscoring dangers to the economy from local borrowing.

“Local governments’ growth targets were too aggressive to begin with and heavily relied on fixed-asset investment,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “As credit conditions are no longer easy, it is actually no surprise that they cannot meet the targets.”

President Xi Jinping said last month that officials shouldn’t be judged solely on their record in boosting gross domestic product, adding to signs that the government will tolerate slower expansion. Xi today oversaw a gathering of the Politburo, the ruling Communist Party’s leadership panel, to discuss the economic agenda for the second half of the year, according to the official Xinhua News Agency.

Communist Priorities

Xi in June said the party should place more importance on achievements that improve people’s livelihood, social development and environmental quality, Xinhua said June 29.

The benchmark Shanghai Composite Index of stocks rose 0.7 percent today after the People’s Bank of China injected funds into the financial system. The PBOC conducted reverse-repurchase operations for the first time since February after the benchmark interbank lending rate rose to a four-week high yesterday.

Credit Suisse Group AG and Societe Generale SA analysts said today’s move indicated the central bank will prevent a repeat of a cash crunch last month that saw the seven-day repo rate, a gauge of the availability of cash in the banking system, reach a record 12.45 percent.

Data Mismatch

China’s provinces are known for reporting growth rates that often exceed the national pace calculated by the central government. The combined GDP released by Chinese provinces for 2012 was 5.8 trillion yuan ($950 billion) more than the countrywide figure published by the National Bureau of Statistics, according to the state-run China Daily.

Even with the new leadership’s statements on seeking slower, more sustainable expansion, provincial governments probably aren’t intentionally reporting figures below actual growth, said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

“For the time being I would not think local governments would deliberately underestimate their GDP numbers,” said Ding, who previously worked at the International Monetary Fund. “Until a new evaluation system is introduced, I think the incentive is still to inflate the GDP number.”

All of the provinces and cities except Shanghai have growth goals higher than the central government’s target for the nation as a whole, and all reported first-half growth above the national 7.6 percent rate. China’s economy expanded 7.5 percent in the second quarter from a year earlier, the second straight deceleration, according to the statistics bureau.

‘Good’ Sign

“That many local governments missing their GDP targets could be good for the Chinese economy,” Yao said. “Missing targets may help divert local governments’ attention toward economic rebalancing and investment efficiency.”

In China, areas with slower first-half growth that trailed 2013 targets include interior provinces of Henan, Sichuan and Shaanxi; eastern Jiangsu, the second-largest regional economy; and northern Hebei, which surrounds the capital of Beijing.

Some provinces and cities reported faster growth that was also ahead of targets. Guangdong, the biggest regional economy, said it expanded 8.5 percent in the first half, above the 8 percent goal and last year’s 7.4 percent January-to-June pace.

First-half growth in the financial center of Shanghai accelerated to 7.7 percent from 7.2 percent, compared with a reduced 7.5 percent target for 2013. Beijing expanded 7.7 percent, up from 7.2 percent though below an 8 percent goal.

Services Industry

“One possible explanation is the service industry appears to be becoming more important in the coastal cities, those more developed regions,” Citigroup’s Ding said. Beijing and Shanghai may be less affected by the investment slowdown and are seeing higher consumption and an aging population, he said.

Elsewhere in Asia today, Japan’s industrial production fell in June by the most since March 2011, when the nation was hit by a record earthquake, as automakers cut back output after a gain the previous month. The Reserve Bank of India left interest rates unchanged.

Europe will see the release of data on July consumer confidence in the euro area as well as second-quarter GDP in Spain and inflation figures for Germany. Data on home prices and consumer confidence will be published in the U.S.

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