China is aiming to expand its economy by about 6.5 percent in 2017 compared with the goal of 6.5 to 7 percent last year.
But it is noteworthy that the target refers to real gross domestic product.
According to Premier Li Keqiang, the country has set an inflation target at 3 percent this year, therefore, China’s nominal GDP growth target is 9.5 percent , a bit higher than 8.7 percent last year.
China managed to reverse the economic downturn through inventory de-stocking, stimulation of private consumption and more infrastructure spending last year.
Inflation rate was 2 percent last year, within the benign range of 2 to 4 percent.
Modest inflation is typically good for economic activity and it also keeps people happy as their incomes rise.
Goldman Sachs has issued even more bullish forecasts on China, projecting 4 percent inflation rate this year after taking into account of a mix of factors including raw material prices, wages, capacity and demand.
Under such assumption, nominal GDP could grow 10.7 percent.
The investment bank recently upgraded Chinese equities to overweight from market-weight. It also raised its MSCI China index target to 73 from 68, implying an upside of about 25 percent from current levels.
Nevertheless, one should not take such forecasts too seriously as they are subject to frequent revisions.
In fact, Goldman downgraded Chinese equities to “market weight” from “overweight” in early December last year, citing capital outflow and economic slowdown concerns. But it changed its mind three months later.
This article appeared in the Hong Kong Economic Journal on Mar. 17
Translation by Julie Zhu
[Chinese version 中文版]
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