China At Risk of Missing Growth Target

by on May 14, 2014 12:16 pm BST

China is at risk of missing its government imposed 7.5 percent growth target after a series of disappointing economic data. The first quarter gross domestic product fell to 7.4 percent, a 18-month low, and there is speculation that growth expansion could slow further.

Chinese President Xi Jinping told market participants to expect a slower pace of growth as the new normal, but there are negative implications if growth slows too much, such as an economic hit to China’s employment. “We maintain our view that GDP growth is on a downtrend and continue to expect it to slow to 7.1 percent in the second quarter,” said Nomura economist Zhang Zhiwei.

However, financial markets are not implying worry in the current period of central bank intervention. There are hopes that the People’s Bank of China (PBOC) will step-in and dole out economic stimulus. Economist feel that the central bank will act as they did in 2013, but the PBOC is aiming to have the economy seek a more stable path of growth. Growth falling from mid-seven percent to low-seven or high-six percent range shouldn’t trigger central bank action.

The central bank Governor Zhou Xiaochuan said at the weekend the central bank would only fine-tune its policy to counter economic cycles and would not be taking any large-scale steps to boost activity. If China does meet its 2014 growth expectations, it would be the slowest pace of growth since 1990.