In an economic update, NAB Group Economics indicated that China is now targeting a GDP range of 6.5 per cent to 7 per cent in 2016, down from “around 7 per cent” as forecast last year.
Announcing the new growth target at the National People’s Congress earlier this month, Chinese policymakers also signalled that an average growth rate of 6.5 per cent will be targeted in the period to 2020.
According to NAB Group Economics, this would result in a doubling of GDP over 2010 levels. The group’s current forecast predicts growth at 6.7 per cent in 2016 and 6.5 per cent in 2017 – “although we consider the risks to be weighted to the downside”.
In addition, China set a new target for growth in total social financing, at around 13 per cent for 2016.
“[This] would mean a further deterioration in the country’s debt-to-GDP ratio,” the update said.
“A broader estimate of China’s debt puts this figure at around 308 per cent of GDP – a level comparable to many advanced economies and particularly high for a still-developing country.”
NAB Group Economics argued that China faces a “significant dilemma” regarding its debt levels.
“They can no longer afford to allow debt to grow unchecked – as this would increase the likelihood of a major financial crisis and the potential for a hard landing.”
“On the other side, real economic growth is unlikely to be sustainable at the five-year target without stronger growth in debt – bringing down the ratio would mean tolerating a considerably lower potential rate for economic growth (something that policymakers are unlikely to tolerate),” the update said.
China also experienced a 17 per cent year-on-year fall in imports across January and February, totalling US$207.5 billion. This in part, according to NAB, reflects the continued fall in commodity prices.
The volume of imports declined less significantly – down by approximately 2.8 per cent in 2015 and 6.8 per cent in January.
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