China Abandons 6.5% Growth Target

As the majority of trading floors in New York and London have now closed holidays, it is the perfect time to policymakers around the world to release any news that might result in an adverse reaction from markets, in the hopes that by the time the traders come back, everyone will have forgotten about it.

 

 

China has by effectively revealing what most analysts were already speculating: the country will have to abandon its growth target of 6.5%.

Global China Strategy

As Bloomberg reports, on Friday China’s President Xi Jinping told a meeting of the Communist Party’s financial and economic leading group that the country may forego its 6.5% economic growth objective due to concerns about rising debt and an uncertain outlook for Asia’s largest economy.

China Abandons 6.5% Growth Target

According to Bloomberg, which cites comments from an unnamed source because the discussions were private, President Xi is open to accepting a GDP growth rate of less than 6.5% if aiming for this target creates too much risk. At the convention, leaders agreed that the country’s growth would remain stable although slower than recent levels as long as employment remains steady.

Even though many Wall Street analysts were expecting China’s economic growth to slow in the years ahead, policymakers’ acknowledgment that this will indeed be the case comes as a surprise. Only last year the Chinese government pledged an annual growth rate of at least 6.5% per annum for five years through 2020.

This change in heart could signal the beginning of the country’s desire to finally get a handle China’s rising debt levels, which are some of the highest in the world. At a meeting last week China’s top economic policymakers apparently pledged to make preventing and controlling financial risk to avoid asset bubbles a top priority for 2017. Bloomberg’s source claims the sudden about-face on debt has come after participants at President Xi’s secretive meeting warned that China’s debt could be reaching unsustainable levels:

“Some meeting participants sounded the alarm about unsustainable debt, noting that other nations have experienced crises after borrowing climbed to around 300 percent of GDP, the person said. China’s debt-to-GDP ratio rose to about 270 percent this year, the person said. The source of the ratio was unclear.”

It’s too early to say if this really is the beginning of a dramatic change in direction for China or if the country is about to begin a great deleveraging but it certainly looks as if policymakers are now waking up to the threat debt poses to the economy. That’s more than can be said for Europe’s leaders at least.