MNI: China Likely Target H2 GDP Above 5%, Avoid Big Stimulus

China policymakers will focus on announced stimulus measures for now and remain cautious on any big new plans in a sign the country would miss a full-year growth target of 5.5% and aim for an annual GDP expansion above 4%, policy advisors and market analysts said.

The world’s second largest economy is likely to see growth above 5% in both Q3 and Q4, which would be robust recovery from the first half, said Dai Xianglong, former governor of the People’s Bank of China, recently in a forum. Dai noted an around 4.5% GDP expansion would be in line with the requirement of President Xi on achieving “a good level of economic growth” this year.

Zhu Baoliang, chief economist at the State Information Central, a state-backed institution, also pointed out China should target GDP growth around 5.5% in H2 via boosting consumption and trying to stabilise the economy around 4% for the whole year in a bid to create benign conditions for future development, (See: MNI STATE OF PLAY:China 5-Yr LPR Eyed As Policy Turns Cautious)

A FIRST

But even reaching the second-half growth rate above 5% would be the first time that China’s actual economic performance fell short of its annual GDP target since 1998 when the annual GDP printed at 7.85% compared with the target of 8% as Asian Financial Crisis broke out. China’s 2022 growth target is “around 5.5%” which is the lowest in the three decades since the country started to set GDP growth targets in 1994.

Premier Li Keqiang said on Wednesday that China will not impose a massive stimulus, or excessive monetary easing and not place an overdraft on the future for an overly high GDP target. Li said that intense downward pressure on the economy in Q2 resulted from a series of unexpected blows including pandemic outbreaks. He reiterated that China would focus on growth in a reasonable range via stabilising employment and prices.

Analysts interpreted that the speech has sent a signal that the PBOC may hold any big easing move, including policy rate cuts in the short term, even though fiscal policy may still have space for additional efforts in Q4. (See: MNI: Warnings As China Interbank Liquidity Feast Bill Near Due)

Xiong Yuan, analyst at Guosheng Securities, calculated based on newly-released 2.5% GDP growth in H1 that if the country insists the target of full-year growth at 5.5%, H2 GDP needs to expand by 8.1%, adding that would be hard to reach.

Xiong said the country would “ensure 4% while fighting for 5% GDP growth for 2023” and preventing a “hard landing” of the property sector. A politburo meeting at the end of July should be watched for any new policy signal, he said.(See: MNI:China Eyes Plans On Unfinished Housing Units Amid Boycotts).

PANDEMIC COSTS

China’s economy has paid a heavy cost for the Covid-19 outbreak and wide lockdowns in April and May. Liu Yuanchun, president of Shanghai University of Finance and Economics, said economic growth in April and May contracted by 2.5%, which means GDP in June jumped about 4%, contributing a 0.4% growth in the whole Q2.

The rapid rebound in June has indicated the economic recovery is strong, bolstered by the previous stimulus measures, and new supportive moves should be cautious, Liu said.

Sun Xuegong, a senior director of the Institute of Economic Research under the National Development and Reform Commission agreed by saying policymakers should mull over plans for Q4 when the 2022 quota of local government special bonds is used up, rather than rush to add ammunition this quarter.

Sun pointed out this round of pandemic spending has been about CNY1.3 trillion, or 1.1 percentage points for the full-year GDP, noting a 5.5-6% growth in H2 is reasonable and there is no need to fight for higher GDP by big stimulus.

FISCAL EFFORTS

Advisors and analysts however said that additional fiscal measures may be needed in Q4 when the economy faces momentum pressures and exports soften. (See: MNI: China Mulls Massive Special Treasury Issuance To Perk GDP).

Zhang Yu, analyst at Huachuang Securities, said the authorities still need additional efforts, possibly by issuance of more local government special bonds or of special treasuries, estimating the key to economic performance in H2 is how much the property sector could recover and exports weaken as global growth slows.

Zhu Baoliang said the funding gap in 2022 is about CNY2 trillion which needs the PBOC and Ministry of Finance to help via raising debt, suggesting there is a need to issue as much as CNY500 billion of consumption coupons to drag up consumption by 2 percentage points in H2.