China economy

Clock ticks for Chinese provinces struggling to hit their 2018 growth targets

  • 19 of 31 provinces and municipalities were behind in meeting their annual goals after third quarter
  • Provincial officials facing race to pump up their local economies to bolster their promotion chances
PUBLISHED : Monday, 26 November, 2018, 12:41pm
UPDATED : Monday, 26 November, 2018, 10:34pm

With slightly more than a month left of the year, Chinese provincial officials are running out of time to meet their annual growth targets, even as Beijing advances trillions of yuan from next year’s budget to stimulate local economies.

Fully 19 of China’s 31 provinces, autonomous regions and municipalities are behind in meeting their annual GDP targets set earlier this year, based on their economic data from the first three quarters of the year, published by the National Bureau of Statistics.

The effects of the central government campaign to cut excessive debt, combined with the trade war with the United States, have sapped growth in many provinces this year.

The growth shortfall in so many provinces this late in the year also raises the question of whether Beijing can meet its national 2018 growth target around 6.5 per cent. Chinese growth was 6.7 per cent through the first three quarters of the year, according to the National Bureau of Statistics, suggesting that Beijing has some leeway to meet the target even if growth slows further in the fourth quarter.

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The rapid weakening of Chinese growth in the second half, and expectations that the slowdown will accelerate next year, adds to pressure on Chinese President Xi Jinping to offer concessions to reach a trade deal in his meeting with US President Donald Trump at the end of this month.

Still, given a lack of effective domestic political pressure, Xi is unlikely to offer the kinds of concessions the US is demanding to call off the trade conflict.

Even though Beijing has stressed the quality of growth rather than its pace, failure to meet the growth targets could hurt local officials’ chances of promotion within the Communist Party hierarchy, giving them an extra incentive to act.

With the clock ticking towards the year end, some provincial officials are pulling out all the stops in the final few weeks to boost growth and secure their jobs.

Xian Hui, governor of Ningxia Hui autonomous region in northwestern China, called on his subordinates to prepare for a 40-day race to meet the province’s growth target by improving the efficiency of key projects, according to a report in the official Ningxia Daily newspaper.

Ningxia’s economy grew 7 per cent in the first three quarters, slightly less than its annual goal of 7.5 per cent. Local economic officials have been under pressure to improve industrial output this year after being publicly shamed by Beijing for blaming the difficulty in achieving industrial goals on central government-mandated environmental protection inspections.

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Last Monday, Tang Renjian, governor of the northwestern Gansu province, ordered local party officials to boost factory production and start new government-sponsored projects as soon as possible.

Gansu’s 6.3 per cent growth in the first nine months was above its annual target of about 6 per cent, but its industrial output fell by 1.6 per cent year on year in October, stoking worries within the government that fourth-quarter growth would disappoint and pull the full-year results below the target.

Chongqing, an economic powerhouse in southwestern China that has led regional growth in recent years, is in deeper trouble than other regions. Its 6.3 per cent growth rate during the first three quarters is well below its target of about 8.5 per cent for the whole year. In October, its industrial output dropped 2.5 per cent year on year, its worst performance in three years, casting another shadow over its annual performance.

The trouble in Chongqing results mainly from faltering investment in major industries such as electronics and car manufacturing, exacerbated by weak spending on research and development that is below the national average. Car manufacturing output there plunged 11.6 per cent year on year during the first nine months.

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“The underperforming electronics and auto industries are not limited to Chongqing,” Jiang Chao, chief economist at Haitong International Securities, wrote in a report. “The industries are facing external and internal pressures from the US-China trade war and weakening consumption from households that have borrowed too much to purchase properties.”

To try to speed up innovation, Chongqing mayor Tang Liangzhi announced three five-year plans last week to develop new energy, artificial intelligence and autonomous vehicles to help upgrade the local car industry.

Beijing has so far been reluctant to undertake a large easing of monetary policy, fearing much of the extra cash would flow into the property market and push up housing prices. Instead, the government has relied on fiscal stimulus measures, including tax cuts, local bond issuance and transfer of payments from Beijing to local governments.

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Many analysts expect the central government to increase next year’s fiscal deficit target to 3.5 per cent of GDP – up from this year’s 2.6 per cent.

Bond issuance by local governments, used to fund local infrastructure projects, has fallen sharply this month, since most provinces met their annual issuance limits before November. Overall, local governments have issued more than 4 trillion yuan (US$576 billion) worth of bonds this year.

To fill the gap in available local funding, the Ministry of Finance has advanced about 2 trillion yuan from next year’s budget to local governments since the end of October. These funds are earmarked for a variety of purposes, from improving access to basic public services to supporting science and technology development at the local level.

These payment transfers were necessary to allow local governments to implement further tax cuts or step up fiscal spending, Yao Wei, chief China economist from Societe Generale, wrote in a report.

“Local governments are already cash-strapped due to the clean-up of local government shadow debt and there are also growing risks of a housing slowdown, which would lead to weak revenues from land sales,” Yao said.