New | Xi open to growth below 6.5pc on debt risks

President Xi Jinping isn’t wedded to China’s 6.5 per cent economic growth objective due to concerns about rising debt and an uncertain global environment after Donald Trump’s election win in the US, according to a source familiar with the situation.

Xi told a meeting of the Communist Party’s financial and economic leading group this week that China did not need to meet the objective if doing so created too much risk, said the source, who asked not to be named because the discussions were private. Leaders at the gathering agreed that the US$11 trillion economy would remain stable with slower growth as long as employment stayed firm, the source added.

Below-target growth would be in line with analyst projections that the expansion will keep decelerating in coming years from an estimated pace of 6.7 per cent in 2016. The slowdown coincides with the nation’s broad shift from an export-led economy to services, which accounted for more than half of growth last year for the first time, and domestic consumption.

Last year, policymakers pledged an annual growth rate of at least 6.5 per cent for five years to 2020. Some economists criticise the growth objective for motivating officials to take risks that may jeopardise financial stability. The International Monetary Fund is among those that have recommended a lower target.

The shift signals that leaders see systemic risk as great enough to warrant re-evaluating key goals and may be less inclined to add to fiscal and monetary stimulus. Xi consolidated his power in October, ahead of a twice-a-decade leadership reshuffle next year, with the party naming him its “core”.

“This is a sign of positive change,” said Yao Wei, chief China economist at Societe Generale in Paris. “The arbitrary growth target of 6.5 per cent has become not only an impediment to the necessary structural adjustments, but also a culprit for rapidly rising debt risk.”