Just in, the International Monetary Fund (IMF) has reportedly lowered its Chinese growth forecasts for the second time in six weeks. From the AFR:
At a briefing in Beijing on Wednesday morning the IMF said it expected the world’s second biggest economy to grow at 7.75 per cent this year and a similar level in 2014.
This is down from 8 per cent in April, when the IMF shaved 0.1 percentage points off its forecast.
After concluding its annual review of China the IMF warned about the record expansion of credit in recent years…
China’s growth unexpectedly slowed to 7.7 per cent in the first quarter of this year. Many economists expect it to slow further over the year as the country’s new leaderships appears more comfortable with lower growth levels.
The government is forecasting growth of 7.5 per cent this year.
The point about China’s authorities becoming increasingly comfortable with lower growth levels was confirmed earlier in the week by China’s President, Xi Jinping, who signaled a tolerance for slower expansion in exchange for greater environmental sustainability:
China’s President Xi Jinping signaled a tolerance for slower expansion to avoid environmental degradation as policy makers outlined plans for the private sector to take a bigger role in boosting growth.
The country won’t sacrifice the environment to ensure short-term growth, Xi said during a study session of the Communist Party’s top leadership on May 24. His comments follow a statement issued on the same day that the State Council, which is chaired by Premier Li Keqiang, approved measures including tax reform to revamp the economy.
Xi and Li, who took over respectively as president and premier in March, are laying the groundwork to cut the government’s role in the economy, open state-dominated industries to private investment and revamp the household registration system that’s hampering urbanization. Some changes are already being trialed while others will be decided at a meeting of the Communist Party’s leadership later this year.
China’s authorities also appear to have decided against enacting new stimulus measures to boost flagging growth, which is in line with the engineered slowdown referred to above:
Senior officials and experts believe it is unlikely the central government will launch a new round of economic stimulus plans despite a slowdown in the country’s economy, the Economic Observer reported Saturday.
“Enterprises need to close down backward production and upgrade their industrial structure, and should not expect further economic stimulus measures by the government,” an official from the National Development and Reform Commission, who wished to remain anonymous, told the Beijing-based newspaper.
Another official from the Ministry of Industry and Information Technology was quoted by the newspaper as saying that the Chinese government did not need to begin new stimulus measures at present. “The stimulus measures will be taken only if the growth of the real economy is slower than (the government’s) expectations,” the source said, adding that the measures could have side effects…
The above reports suggest that China’s authorities are serious about re-balancing the economy away from unsustainable investment-led growth. While such moves are not unexpected, they do have the potential to weigh significantly on economies that are highly reliant on commodity exports, such as Australia.
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