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Nation 'ready for new era' of lower GDP growth rates

Updated: 2014-12-02 08:06
By LI XIANG (China Daily)

Analyst expects price pressures to be muted in 2015, with CPI at 2%

China will likely lower its growth target for next year at the upcoming Central Economic Work Conference, indicating Beijing's willingness to trade short-term growth for reforms, economists said on Monday.

The annual economic meeting, which is usually held in early December, has been closely watched as it will set the tone for the country's economic development and reform in the coming year.

"We expect the conference to lower the GDP target for next year to 7 percent, which we think is appropriate. It is acceptable to even reduce it below 7 percent," Song Yu, China economist at investment bank Goldman Sachs Group Inc, told a news conference in Beijing on Monday.

Some analysts said that if a reduced GDP target is contained in the final statement of the conference, it will mean that China will officially enter an era of slower growth.

But that will not necessarily imply that China's prospects are negative, economists said, because slower growth will help the country shift from quantity to quality when it comes to growth.

Goldman Sachs forecast that the country will be able to maintain 7 percent growth next year. But the days of double-digit growth are over, and China will likely post an average growth rate of only 6.5 percent in the next five years, it said.

Song said that Beijing will likely lower the targets for most economic indicators except money supply.

Most economists have forecast there will be at least one more interest rate cut and a reduction of banks' reserve requirement ratios next year to ease banks' and local governments' debt burdens, support business sentiment and sustain private demand.

Song said that the recent interest rate cut by the central bank should not be interpreted as just a monetary easing by policymakers as a way to flood the market with liquidity.

"The central bank said it was a neutral operation, which showed that it is carefully balancing credit control and growth and intends to provide just sufficient liquidity, not too much or too little, to support economic growth," he said.

Song said that price pressures will be muted in 2015, with the Consumer Price Index likely to rise by about 2 percent next year, even lower than this year's 2.2 percent. But concerns about the risk of deflation in China are unfounded, he said.

Despite the modest prospects for the Chinese economy, the country's equity markets are seeing a rebound as investors' confidence improves.

Kinger Lau, a strategist at Goldman Sachs, said that he expected the CSI 300 Index, which tracks big companies in Shanghai and Shenzhen, to climb to 3,000 points next year.

About 400 billion yuan ($65 billion), equal to about 3 percent of total market capitalization, "will likely flow from the property market to the stock market in China, further pushing up equity prices", he said.

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