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Former PBOC Adviser Says Property Weakness Will Lower GDP Growth

Former PBOC Adviser Says Property Weakness Will Lower GDP Growth

Weakening property demand will dim China’s economic prospects, dragging growth lower in the second-largest economy, said Li Daokui, a former central bank adviser.

Gross domestic product will expand 7.4 percent this year before growth slows further to 7.3 percent in 2015, said Li, head of the Economic Research Center at Tsinghua University. The center previously put China’s growth rate this year at 7.6 percent.

Li’s latest forecast echoes other state-backed researchers in anticipating lower growth as economists from quasi-official sources assign little probability that leaders will splurge on stimulus to meet the government-set growth target. Premier Li Keqiang has reiterated this year that growth can be slightly above or below 7.5 percent and said last week that China prefers reform to stimulate the economy.

“The property industry, which has been a traditional driving force for the Chinese economy, has lost power and is expected to remain weak,” Li said.

China’s growth goal was 7.5 percent in 2012 and 2013, and expansion came in at 7.7 percent each year, according to the statistics bureau. The International Monetary Fund in July urged China to set a growth target of 6.5 percent to 7 percent for 2015, warning of a “web of vulnerabilities” in the economy from real estate and rising debt.

Chinese policy makers eased some property restrictions this month for the first time since the global financial crisis, according to the central bank’s statement on Sept. 30.

Threat to Growth

Still, slowing property investment and industrial production pose a threat to growth while the government appears adamant in its resolve to press ahead with reform and eschew broad stimulus to repeat those excessive investments in industries with overcapacity and a housing bubble.

China’s growth may slow to 7.1 percent next year from an estimated 7.4 percent in 2014, said Chen Dongqi, a deputy director of the research arm of the National Development and Reform Commission.

In the event growth slows to a range of 6.5 percent to 6.8 percent, China can still opt for monetary policy tools including “benchmark interest rates and required reserve ratio,” Chen said at a forum in Beijing today. On the fiscal side, the country may also dispense resources to boost investment in railways to cushion a slowdown, he said.