As China’s economic growth slowed to a 22-quarter low of 7.3 percent, chances are that the world’s second-largest economy will not expand 7.5 percent for the whole year.
Although growth may recover a bit in the fourth quarter thanks to a rebound in the manufacturing sector and the government’s loosening monetary and property market policies, full-year growth is likely to stay at 7.4 percent.
But the top leadership seems satisfied. After the data were released, senior officials including Premier Li Keqiang and Vice-Premier Zhang Gaoli said economic growth is in the “comfort zone” and China can achieve its yearly goal.
To be specific, the country set its 2014 GDP growth at around 7.5 percent. Since the premier has said on a few occasions that a growth rate close to 7.5 percent would be acceptable, it is likely that top policymakers won’t be eager to shore up the economy with a massive stimulus. Nor will they further loosen the monetary stance.
The policymakers’ confidence is backed by the stable labor market. Surveys show the unemployment rate in dozens of cities is about 5 percent while newly created jobs exceed expectations. In the first nine months of the year, 10.82 million jobs were created, 160,000 more than a year ago and exceeding the government’s full-year target of at least 10 million new jobs.
The top leadership is increasingly convinced that a fast growth rate is not necessarily the precondition of a stable labor market. Policymakers now believe reforms, such as tax reduction and government deregulation, can also help boost employment.
The other reason why top policymakers are comfortable with slower growth is that the slowdown can help solve some persisting economic problems such as over-reliance on the property market, industrial overcapacity, snowballing local government debt and slow progress in financial reform.
A slower growth can also help China press ahead with the transition from an export-led economy to a consumption-led one.
As growth slows, businesses, including those run by the government, must rely on innovation, management efficiency and marketing diversity to stay afloat. This will help improve the quality of the economy.
In addition, a brake in growth fits the country’s wish to curb air pollution and protect the environment.
Keeping that in mind, the top leadership is likely to lower the economic growth target for next year to 7 percent.
With the less aggressive goal, the central government will have little pressure to pursue growth and can instead focus more on restructuring the economy. That means it will not need to resort to stimulus, which often comes with greater credit loosening, to keep the economy on a fast track.
If the central government lowers the growth target, local governments will definitely follow suit, which means they would be less likely to continue with the old practice of desperately pursuing regional growth at the price of the environment, low efficiency and unchecked borrowing.
But slower economic growth will lead to a rapid slowdown in the rise of government fiscal income. As indirect taxes account for a major part of China’s taxes, government incomes rely heavily on economic activity.
In the first three quarters of this year, China’s fiscal income stood at 10.64 trillion yuan, an increase of 8.1 percent. In September, the income was 995.3 trillion yuan, up 6.3 percent.
This shows that the economic slowdown has already greatly affected government income growth, which means the government would face some difficulty in spending and budget planning.
The top authorities must be aware of the fiscal growth slowdown and be used to that. It is important for them to stick to the principles despite a tighter budget.
In addition, the global economic situation needs to be more closely watched and domestic policies adjusted accordingly.
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