China Likely to Set Slower GDP Growth Target for 2018, UBS Says

  • Wang Tao revises up 2018 PPI estimate to 2.8% from 1.6%
  • Deleveraging likely to tighten liquidity conditions: Wang

China's Economy Shows Stability

China’s main annual economic policy meeting is likely to set a slightly lower growth target for 2018, suggesting that deleveraging will be gradual and no "serious" property tightening measures are in the pipeline.

That’s according to Wang Tao, head of China economic research at UBS Group AG in Hong Kong. She argues in a Dec. 5 note that policy makers won’t drop a numerical growth target altogether, though may set a range similar to this year’s at around 6.5 percent without repeating this year’s language that it should be higher if possible in practice.

Policy makers usually convene their annual Central Economic Work Conference in December. The growth target is usually announced in March at the meeting of the country’s legislature.

Though President Xi Jinping didn’t specify a longer-term growth target at the twice-a-decade Party Congress in October, "we think the government still intends to achieve the goal of doubling 2010 gross domestic product by 2020, as an essential part of achieving the ‘prosperous society’ objective,” Wang said. "To achieve this goal, China needs a 6.3 percent annual real GDP growth rate in the next three years. As such, and since the government is also keen on continuing supply side reform and deleveraging, we think the growth target will be set lower and de-emphasized."

There’s a risk that tighter financial regulation and a campaign to cut the level of borrowing in the economy will push up market rates at year-end, also bringing an increased risk of credit defaults, she said. But a major market calamity is unlikely because policy makers will calibrate the pace and degree of tightening to avoid market volatility, Wang said.

Wang said she expects top policy makers will maintain the prudent and neutral monetary policy stance they announced after the prior Central Economic Work Conference last December while "letting tighter regulations do the heavy lifting of pushing up market rates rather than raising benchmark interest rates."

Wang revised up forecasts for factory inflation next year to 2.8 percent from 1.6 previously because of higher-than-expected prices so far this year and a higher outlook for oil prices. The forecast for consumer inflation was also revised up, to 2.5 percent next year from 2.2 percent previously, she said.

If the U.S. Federal Reserve hikes rates more than twice next year, the People’s Bank of China will raise repo rates, and if consumer prices approach 3 percent for a few months the benchmark one-year lending rate will likely be raised by 25 basis points in the third quarter next year, she said.

— With assistance by Kevin Hamlin

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