China Central Bank Adviser Calls for 6%-7% Growth Target

Updated on
  • Huang Yiping speaks in interview with Xinhua News Agency
  • The 6.5% target is just an average rate, economist says

China should set a more flexible 2017 economic growth target to give policy makers more room to enact reform, according to Huang Yiping, an adviser to the People’s Bank of China.

He proposed a range of 6 percent to 7 percent for this year, compared with the 6.5 percent to 7 percent objective in 2016, the official Xinhua News Agency reported. Last year’s target, the first range in two decades, was down from 7 percent for 2015.

The country’s leaders also have a longer-term objective. President Xi Jinping has said he wants expansion to average at least 6.5 percent in the five years through 2020 to achieve the Communist Party promise of building a “moderately prosperous society” by that year with gross domestic product and income levels double those of 2010.

"The 6.5 percent target is just an average rate," Huang, an economics professor at Peking University, told Xinhua in an interview published late Sunday. "As long as employment is stable, a slightly wider growth target range in the short term will reduce the need for pro-growth efforts and give policy makers more room to focus on reforms."

Huang said a large number of "zombie companies" remain economically inviable yet still manage to survive on government and bank assistance, bringing down the overall efficiency of resource allocation in the economy.

Smooth Re-balancing

In addition to slowing growth and rising debt, top officials are also trying to manage a smooth re-balancing from the old growth drivers such as manufacturing and construction as new ones like consumption struggle to compensate. Meanwhile, policy makers are focusing more on safeguarding the financial system.

Preventing and controlling financial risk to avoid asset bubbles will be a priority for 2017, along with deepening supply-side structural reform, top party officials said recently after their annual gathering of the Central Economic Work Conference to decide on policy goals.

Still, Huang said the exchange rate of the yuan will be largely affected by investors’ expectations about growth, as the government faces some difficulties supporting it even though the nation has sound economic fundamentals and huge foreign exchange reserves.
Capital outflows will “last for a certain period” as more Chinese residents look overseas to diversify their investment portfolio, Huang said, according to Xinhua.

Xi is open to growth below the 6.5 percent target due to rising debt and concern about an uncertain global environment after Donald Trump’s U.S. election win, a person familiar with the situation told Bloomberg News last month. Hitting the target isn’t needed if doing so is too risky, said the person, who asked not to be named because the discussions were private.

China is poised to abandon its longer-term growth target in the next two years as leaders push to contain asset bubbles and financial leverage, Yao Wei, chief China economist at Societe Generale SA in Paris, wrote in a report last week. She said the 6.5 percent goal will likely be lowered to a range of 6 percent to 6.5 percent, or even 5.5 percent to 6.5 percent.

— With assistance by Jeff Kearns

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