MNI: China Needs Over 5.1% Growth In Q4 To Meet Targets

MNI (BEIJING) - China’s economy should grow by 4.5-4.8% in Q3, meaning a likely multi-trillion-yuan boost to government spending will be vital to achieve expansion of at least 5.1% in Q4 and meet the 5% annual growth target, advisors and analysts told MNI.

Lian Ping, chairman at the China Chief Economist Forum, saw Q3 growth at 4.8%, while a researcher at a government-backed think tank expected 4.7%. Wen Bin, chief economist at China Minsheng Bank predicted 4.5%, slowing from Q2’s 4.7%.

In order to meet the annual GDP target, authorities will partly rely on CNY2.5 trillion in already-allocated quotas for raising project-backed bonds, which could return growth to above 5.2% in Q4 if the funds are deployed quickly to activate workers on the ground, said Lian. This includes CNY250 billion of ultra-long-term special treasuries, and CNY2.3 trillion of local government special bonds, Lian said, adding that a major debt-swap programme promised by the Ministry of Finance to ease the debt burden of local governments could also boost infrastructure spending.

The think tank researcher estimated that the amount of financing authorised for spending on projects but remaining unused is as much as CNY3 trillion. Some of this money could be deployed to ongoing national projects while local government could also use special bonds to purchase idle lands and unsold homes for affordable housing, helping to support the weak property market, the advisor said, asking to remain anonymous.

ADDITIONAL SPENDING

At least CNY2 trillion of additional government spending will be needed to address the gap between budget revenue projections earlier this year and actual revenue, the advisor said. Boosts to trade-in programmes for automobiles and appliances, and for consumer coupons, as well as additional financial assistance to the low-paid and to multi-child families, could help push Q4 growth to 5.1-5.2%, the advisor continued.

“Additional funds should focus on reversing negative expectations, so as to promote a rebound in prices and improve tax revenues,” the advisor said. (See MNI INTERVIEW: PBOC Moves, Stimulus To Boost Stocks-BOC's Zong)

The central government’s fiscal deficit is likely to be significantly higher in Q4 than initially budgeted at the beginning of the year, following MOF assurance that it has substantial room for further borrowing, Lian continued, adding that this should include additional issuance of up to CNY1 trillion in special treasuries to replenish capital at large state-owned banks.

CONSUMPTION KEY

Consumption could provide about 55% of GDP growth this year, said Lian, who expects a Q4 jump in retail sales, taking annual growth in the category to 4.5%. The advisor expected retail sales growth above 3% in the last quarter, up from August’s 2.1%, though also cautioning that some of this may be consumption brought forward from next year. (See MNI: Beijing Shifts Focus To Consumption To Boost H2 GDP)

Real-estate investment should slightly narrow its decline to 10% by year-end, and improve more significantly in 2025, as the declines in home sales and housing prices narrow, according to Lian.

The National Bureau of Statistics is set to release the Q3 figures on Friday. Other data releases that day could see September industrial output accelerate to 4.7% from August’s 4.5% amid rising PMI, and a rebound in retail sales growth to 2.5%, Wen said. But fixed-asset investment growth could slow to 3.1% in the first three quarters from the previous 3.4% as local governments coped with hidden debts and manufacturers’ profits slipped, according to Wen.