China: Premier’s Report Shows New Economic Strategy

Posted by: : Paul EbelingPosted on: March 9, 2014
China: Premier’s Report Shows New Economic Strategy
UBS
China’s 7.5% growth target is the same as in the last few years, its importance is fading as many believe the government no longer sees the number as the necessary minimum.
“We should keep economic performance within a proper range,” Permier Li Keqiang said in the government work report to China’s top legisalture last week.
The range, a lower limit to ensure steady growth and job creation, an upper limit to avert inflation written in the government work report for the 1st time is seen as China’s new strategy of balancing growth and reform.
China usually overshoots its growth target.
Last year growth came in at 7.7%, but there is more tolerance now for a slower pace.
At a press conference on the sidelines of the annual session of the National People’s Congress last Thursday, Finance Minister Lou Jiwei downplayed the figure.
“Whether the final figure is at a touch more or less than the target is not that important. Employment is the Key,” he said, adding a growth of 7.3 or 7.2% is counted as in the acceptable range.
For those who want the government to abandon targets  and worry about reform instead, Li’s report may be disappointing, but China needs stable growth to create enough jobs to guarantee the relocation of the rural labor force to the cities.
“China’s demographics are changing so it does not need to grow as fast as in the past. There are still many rural people with low incomes and 7-M college graduates per year looking for jobs, making a moderately fast pace of growth necessary,” noted a senior fellow with the Washington’s Brookings Institution.
According to Li’s report, some 7.27-M college graduates will be out hunting jobs in Y 2014, and another 10-M people are targeted to be lifted out of poverty.
Despite good  economic performance, many people still live under very  harsh conditions. With China’s poverty line drawn at 2,300 Yuan of annual net income last year, a rural population of 82.5-M are officially poor.
“China is still a developing country… It must keep economic development as the central task,” the premier stressed.
Promising stable growth does not mean compromising reform. Rather, it sets favorable conditions for speeding up the economic overhaul.”Reform is the top priority this year,” Premier Li.
Among the plans for Y 2014, Li announced a deposit insurance system, considered a precondition for freeing deposit rates. It is probably the last and most important step of interest rate liberalization.
Also, China will overhaul the current system for local government to issue bonds to contain the mounting debt problem. There are detailed measures to cut overcapacity in solar, cement, steel, etc, a drag on the economy.
In steps to address public concerns, Li also “declared War” on pollution and promised severe treatment for crooked officials “without Mercy”. “Without Mercy”often means death.
“As we had expected, relatively easy reforms and those with the broadest consensus, will go at a faster pace in the near term,” said Wang Tao, chief China economist at UBS (NYSE:UBS).
Ambitious GDP growth will likely limit the room the government has for maneuverer, as it struggles with local government debt and financial leverage and other important reforms, Wang cautioned, expecting more painful reforms to go slower.
UBS forecast China’s Y 2014 growth will mark 7.8%.
Stay tuned…
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Paul Ebeling

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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.
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