December 9, 2014 / 6:03 AM / 3 years ago

China advisers recommend 7 percent growth goal in 2015 as leaders meet

5 Min Read

An employee welds the exterior of a vehicle along a production line at a factory in Qingdao, Shandong province December 1, 2014.China Daily

BEIJING (Reuters) - China's leaders should cut next year's economic growth target to 7 percent, according to influential advisers recommending the country's leadership which was meeting on Tuesday to map out economic and reform plans for 2015.

China looks set to miss its growth target this year for the first time since 1999, and full-year growth is likely to be the weakest in 24 years. The government last cut its annual growth target in 2012, to 7.5 percent from the 8 percent it had kept for eight years.

Government-run think-tanks, which are influential in the decision-making process but do not wield power themselves, plan to recommend that Beijing reduce its official 2015 GDP growth target to 7 percent from 7.5 percent this year, sources said.

"President Xi (Jinping) has already hinted at the growth target when he said growth of 7 percent is the highest in the world," said a senior economist at the Chinese Academy of Social Sciences (CASS), who declined to be named.

"I think it should be 7 percent if there are no more surprises. But it can't be lower than 7 percent, otherwise there could be employment problems and debt default problems."

China's reform-minded leaders have shown greater tolerance for slower growth, but will have to tread carefully to avoid a sharper slowdown that could fuel job losses and debt default risks, analysts say.

The annual Central Economic Work Conference, which state radio said meets from Tuesday, may reiterate a prudent monetary policy, but the sources believe the underlying tone could be accommodative to ward off a sharp growth slowdown.

Growth vs Reform

Economists expect policymakers to embark on their biggest easing campaign since the global financial crisis, forecasting a combination of more rate cuts and reductions in bank reserve requirements to encourage lending despite mounting bad loans.

After months of saying major stimulus wasn't needed, the central bank surprised markets on Nov. 21 by cutting interest rates for the first time in more than two years to shore up growth and lift some of the pressure off debt-laden companies.

Economists believe the move signalled policymakers' concern over a sharper slowdown, even as Xi talks about a "new normal", that China should adapt to slower, but more sustainable, growth after three decades of breakneck expansion.

The People's Daily, the Communist Party's leading paper, said in a commentary that the government's efforts to support growth and reforms were equally important. "The new normal does not mean growth is not needed. Reforms lack basic premise if growth is not stable," it said, adding China should keep credit steady to support growth and curb systemic risks to avoid a "disruptive mistake".

In September, Xinhua news agency, another party mouthpiece, said those who expected interest rate cuts showed their distrust of reforms. The People's Daily retorted by arguing that cutting rates could not be seen as the opposite to reforms.

At the meeting, top leaders could discuss ways to quicken economic reforms next year, including a fiscal overhaul to deal with the root cause of local government debt, and further financial market liberalisation, the sources said.

Inflation Seen Easing Too

Several think-tanks have also suggested the government lower its target on consumer inflation to around 3 percent from this year's 3.5 percent, given falling commodity prices.

"We recommended a growth target of around 7 percent," said Zhu Baoliang, chief economist at the State Information Centre. "We suggested an inflation target of around 3 percent. On employment, we should aim for 10 million new jobs," he said, adding he recommended a quicker pace of reform in 2015.

The government may budget a deficit of nearly 3 percent of GDP in 2015 from this year's 2.1 percent, to allow local governments to sell bonds independently as they scale back fund-raising via local financial vehicles, sources said.

"We will close the back door, barring local governments from raising debt via special purpose vehicles, but we must open up the front door. We need to boost fiscal spending and expand the budget deficit as we need to stabilise growth," said the CASS economist.

The meeting, expected to run until Thursday, is unlikely to result in any public announcement of economic targets, which are usually reserved for the opening of the national parliamentary session in early March.

Adding to already gloomy data, analysts expect upcoming figures on investment and inflation to be similarly lacklustre, and the property market is likely to remain weak well into 2015, weighing on demand for everything from furniture and glass to cement and steel.

Reducing the growth target would be a natural reaction as Beijing moves to manage domestic expectations.

Writing by Pete Sweeney in SHANGHAI; Editing by Mike Collett-White and Ian Geoghegan

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