China Economic Update – 14 March 2014

At the start of this month’s National People’s Congress, Premier Li Keqiang confirmed China’s growth target at ‘about 7.5%’ in 2014, but noted that reform was the Government’s top priority.

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At the start of this month’s National People’s Congress, Premier Li Keqiang confirmed China’s growth target at ‘about 7.5%’ in 2014, but noted that reform was the Government’s top priority. While the target is notionally unchanged from last year, comments by other government officials suggest that there could be some flexibility this year.

Finance Minister Lou Jiwei told a media briefing that job creation was a higher priority than economic growth, and that growth at around 7.2-7.3% would be in line with the target. Missing the growth target is not unprecedented, although Reuters note that the last time this occurred was 1989.

The unchanged growth target seems somewhat at odds with official targets for other measures. Economic growth targets for most provinces have been cut this year, the National Development and Reform Commission is aiming for growth in fixed asset investment of 17.5% (down from a target of 18% and actual outcome of 19.6% last year), while the Ministry of Industry and Information Technology cut the industrial production target to 9.5% (from 10% last year).

Our forecast for China’s economic growth is unchanged – reflecting our expectations for softer investment and export trends in 2014, with domestic consumption unable to fill the gap. We expect growth of 7.3% in 2014 (along with 7.0% for 2015) – however the stronger growth target may indicate modest upside to this view.

Growth in industrial production slowed significantly in February – down to 8.6% yoy (well below market expectations of 9.5%) from 9.6% yoy in December 2013. This level is the lowest recorded since May 2009 (when China was recovering from the global financial crisis). Although this result is quite soft, it may have been impacted by Chinese New Year effects (and a clearer picture of industrial conditions will emerge next month).

For further analysis download the full report.