China lowers its growth target – no big deal

China’s government has lowered its growth target for this year. That is not necessarily bad news, and the step likewise did not come as a complete surprise. In recent weeks, countless provinces had already reeled their targets back in. The economic indicators since the beginning of the year have predominantly been weak. It is no secret that the prospects for China’s economy are at present anything but rosy. The trade dispute with the United States is leaving an ever more obvious dent in China’s economic cycle, and not just the US customs tariffs imposed on Chinese goods delivered, but also the counter-tariffs Beijing has imposed on imports from the USA.

It was only logical that in his opening speech at the National People’s Congress that has just begun, Premier Li Keqiang cited the trans-Pacific trade conflict as the reason why the targets were being lowered. However, the step taken is but a small one: Instead of by “about 6.5%”, the Chinese economy is now supposed to grow by 6-6.5%. Nevertheless, economic growth, having slowed down to the lowest level since 1990 at 6.6% last year, which was exactly the target set, now looks likely to fall short of that 28-year low.

The good news is that the Chinese leadership has thus given itself the scope to permit somewhat lower growth rates and will at least not have to go back to stimulating the economy in a big way with debt-financed state infrastructure projects. Such measures have in part already been initiated, as can be seen from the latest figures on loan approvals and state investment activities. Beijing will presumably now dose the stimuli a little more thriftily. That marks important relief above all given the country’s dangerously high debt load – which increased again appreciably last year.

By lowering the growth target, the Chinese government is above all bringing things more into line with reality. It would have been questionable anyway whether the target of 6.5% set to date could have been straightforwardly achieved without economic policy stimuli and whether Beijing would have had to “window-dress” the official figures in order to achieve the target – a practice that pundits have long since suspected takes place. We do not therefore once again assume that the actual growth momentum in China in the current year will be substantially weaker than hitherto presumed or that the country will import a lot less. In the final instance, the official growth rate for the Chinese economy is first and foremost a political number.

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