China targets low growth as the exports slow down

Category: Global Economy Sub-category: World Economy
Document type: news

20-Mar-2012 | 11:30 IST | Edited by: Sharmila Maitra.

The Chinese government will target an economic growth of 7.5% this year. This is their lowest goal since 2004. It has been observed that the leaders tolerate a slower expansion while trying to reduce the nation's reliance on exports.

This is the first time the Chinese government has lowered its economic growth target after keeping it around 8% for seven consecutive years.

The Asian powerhouse expanded by 9.2% last year, slowing from 10.4% in 2010, as global turbulence and efforts to tame high inflation has put the brakes on growth.

inflation rate of China

The lower target is an acknowledgment that the world's second-largest economy is showing as the result of euro-zone debt crisis and the sluggish recovery in the United States hurt demand for Chinese exports.

China exceeds the annual growth target unveiled every March, and most economists are predicting gross domestic product growth of 8.0-8.5% for China this year.

The officials, however, have set an inflation target of about 4%, unchanged from last year's goal.

The growth target should be read as the lower bound of the government's "comfort zone." It can also be viewed as a gesture from the central government that local governments should not focus solely on the pace of expansion.

The officials also said that the government will maintain a "proactive" fiscal policy and a "prudent" monetary policy. The government in February had lowered banks' reserve requirements for the second time in three months to boost lending and sustain growth, following the five interest-rate increases from October 2010 to July 2011 aimed at slowing inflation.

According to the Chinese premier Wen Jiabao, the "slightly lower" growth goal is part of efforts to change the nation's economic model to be more sustainable and efficient and achieve a "higher quality of development over a longer period of time.

Moreover, it can be observed that the MSCI Asia Pacific Index, which has gained for 11 straight weeks, fell by 0.6% as of 11:01 a.m. in Tokyo. The benchmark Shanghai Composite Index gained 0.2% at 10:02 a.m. local time. The gauge, while up 12% in 2012, has declined 16 percent from a year ago as China's growth decelerated to the slowest since the second quarter of 2009. The yuan weakened 0.1% against the dollar to 6.3075.

The growth target matched the median forecast of 15 analysts. Twelve of them forecast a 4% inflation goal, while median estimate of 13 respondents was for a budget deficit of 1 trillion yuan.

The officials are targeting money-supply growth of 14% in line with the median forecast of 15 analysts for the rise in M2, the broadest measure. China has a goal of increasing fixed-asset investment by 16%  this year, the National Development and Reform Commission said in a report. That's below the 18% median estimate of 12 economists.