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MNI POLICY: China Could Set Growth Target Around 5%: Advisors

China could set the annual growth target at about 5% for the next five years as it implements its dual-circulation strategy, but the country faces many risks, including rising debt levels, de-industrialization, the security of its manufacturing chain and an aging population, policy advisors from the Chinese Academy of Social Sciences said at a briefing held by State Council Information Office Tuesday.

The annual target is near China's potential growth rate of 5% to 6%, and takes into account factors such as the Covid-19 uncertainty and the possibility of higher growth due to reforms in recent years, said Li Xuesong, a deputy director of Institute of Industrial Economics of the Chinese Academy of Social Sciences.

The biggest risk in the next five years would be a quick hollowing-out of industry, which, if combined with soft support from the service sector, would push China into a middle-income trap, said Huang Qunhui, director-general of the Institute of Economics under the Chinese Academy of Social Sciences. Huang said the manufacturing sector still has the potential to lift growth.

However, the emphasis on domestic circulation aims to prevent industrial hollowing-out, which could also hit growth momentum, said Zhang Yuyan, the director of Institute of World Economics and Politics of Chinese Academy of Social Sciences.

DEBT

Referring to leverage in the economy, Zhang Xiaojing, director of the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said China needs to find a balance between stable economic and debt growth. Interest payments across the economy this year would reach about 1.5 times of new GDP added this year as the government relaxes credit to deal with the Covid slump.

Zhang warned that bad loans at small and medium-sized banks will rise further. The leverage ratio surged 27.7 percentage points from January to September, reaching 270.1%. Zhang attributed the sharp increase to the slow GDP growth in 2020.

Other major challenges in the next five years would be maintaining the security of the industrial supply chain and dealing with an aging population as population growth will peak around 2028, Zhang said.

MNI Singapore Bureau | +65 9 632 1991 | sumathi.vaidyanathan.ext@marketnews.com
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MNI Singapore Bureau | +65 9 632 1991 | sumathi.vaidyanathan.ext@marketnews.com
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