Some of the leading institutional banks are projecting that China might reduce its target growth to 7% next year based on their observation that that the Chinese government is determined to implement structural reforms and maneuver its economy of the country in a more sustainable direction.
All eyes on CCP announcement
The leaders of China’s Communist Party are currently discussing the country’s policies for the next decade. Companies and investors in the country are looking for signs regarding the strategies of the leaders of the party. The reduction of China’s growth target is a significant implication of the plans of the government. Any announcement regarding the issue is improbable until March, during the annual Chinese Parliament.
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
Over the past several years, China tried to achieve a growth rate of 7.5%. The country managed to exceed its annual growth targets consistently. Levin Zhu, the son of former premier Zhu Rongji and head of investment bank China International Capital Corp forecasted that the Chinese government could lower its growth target to 7%.
Cutting its growth target next year indicates the China is willing to accept a slower economic growth in order to address risks from rising debt levels and property prices in the country.
China’s reduced growth target critical for reforms
Pen Wensheng, chief economist at CICC, commented that reducing China’s growth target in 2014 is critical for the government to carry out reforms. He described reforms as a process of “draining away the filth and letting in fresh water.”
He opined that the reforms that will be implemented will be focused on financial deregulation, boosting consumption, and deflating the property market. Wensheng added, “In the short term, the reform process won’t necessarily be positive for growth.”
On the other hand, Louis Kuijs, economist at Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) said, “The October credit numbers point quite clearly to a firmer stance. We expect the firmer stance to be maintained in the coming quarters.”
Xinhua News Agency, the government-controlled broadcaster, commented that the top priority of the Chinese government is to implement reforms, but it did not provide further details about it.