Xi Jinping comfortable with lower growth rate for China's economy

Remarks of think tank official point to Beijing's push for deeper reforms even if downside risks will reduce the expansion target of 7.5 per cent

PUBLISHED : Saturday, 26 July, 2014, 1:39am
UPDATED : Saturday, 26 July, 2014, 5:02am

President Xi Jinping believes a slight slowdown in economic growth would be acceptable, Li Yang, a deputy head of the Chinese Academy of Social Sciences, told a briefing yesterday as the government think tank said growth could ease to as low as 6.4 per cent.

"[Xi] repeatedly said it wouldn't matter if economic growth slows a little bit. It's nothing worse than delivering a score sheet less pretty than that of the predecessors - even so, it would not be a big deal," Li said, referring to remarks Xi made at a meeting with government economists on July 8.

The insight into Xi's thinking revealed by Li may help clarify some public confusion, as it suggests the top leadership may remain committed to deepening reforms even though some of the moves may add to downside risks for the economy.

Xi had asked think tanks including the CASS to assess reform steps that had been or would be rolled out, and to also come up with top-down designs for financial and property reforms, Li said, without elaborating.

Plagued by falling productivity, an ageing population and financial risks, the mainland's economic growth rate eased to 7.5 per cent in the second quarter, a sharp contrast to growth rates that peaked at more than 10 per cent in the past decade.

Beijing has said it is targeting "an about 7.5 per cent" growth rate for this year. But contradictory official comments have sent mixed signals about the leadership's tolerance towards a slowdown.

Premier Li Keqiang said during a visit to London last month that the economy would grow at least 7.5 per cent this year. But his tone softened in a Xinhua report released earlier this month, when he said a growth rate slightly better or worse than 7.5 per cent would be acceptable.

CASS said the potential growth rate for the economy could range between 6.4 per cent and 7.8 per cent a year over the next five years. Li Yang said growth in that range would be "very comfortable" and good enough to allow the government to carry out more reforms.

CASS' forecast came a day after the International Monetary Fund cut its estimate for mainland gross domestic product growth this year to 7.4 per cent from its April prediction of 7.6 per cent.

The IMF said it expected the mainland's growth to slow to 7.1 per cent next year, as the world's second-largest economy sought to rebalance and transition to a more sustainable path.

It also trimmed its global growth projection for this year to 3.4 per cent from 3.7 per cent.

However, some researchers have boosted their forecasts for mainland growth this year following the government's easing of credit and acceleration of fixed-asset investment. Limits on property purchase have also been eased in some cities.

In the past week, Bank of America Merrill Lynch raised its forecast for mainland growth this year to 7.4 per cent from 7.2 per cent. Citic Securities and HSBC both boosted their forecasts to 7.5 per cent from 7.4 per cent.

Li Yang said mainland growth was set to soften in the long run as the services sector, which operated at lower efficiency than manufacturing, accounted for a greater share of the economy.

The high growth of past decades was the result of about 10 million rural labourers flowing each year into the manufacturing sector, where productivity was more than 10 times higher than in rural areas, he said, adding that that trend had now passed.

CASS urged the government to invest more in areas such as education, health care and social security to improve the quality of the workforce and boost long-term productivity.