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Achieving 7-percent growth rate in 2015 should not be hard-and-fast rule for China

The stock market rout that began in June is bound to spill over to the real economy. Photo: Shutterstock

At this year's two sessions, the Chinese government set the 2015 economic growth target at around 7 percent. On July 15, the National Bureau of Statistics (NBS) said that China's GDP rose 7 percent in the second quarter from a year earlier, unchanged from the first quarter.

Despite the reassuring economic figures, many economists are still skeptical about the credibility of the official statistics, which they believe are incompatible with China's actual situation.

The Chinese government admitted that both the downward pressure and the external economic environment have put a brake on the economic growth speed in the first half of 2015, which can be reflected by the following economic numbers.

Statistics from the General Administration of Customs (GAC) indicate that China's total foreign trade dropped 6.9 percent year-on-year to 11.53 trillion yuan in the first six months of 2015. Overall fixed asset investment rose 11.4 percent year-on-year in the first half of 2015, but down 2.1 percent on the previous year, according to data from the NBS. The statistical agency said that real-estate investment increased 4.6 percent year-on-year to 4.4 trillion yuan in the first half of 2015, with the rate of growth slowing by 3.9 percentage points compared to the first quarter. Retail sales grew 10.4 percent year on year to 14.16 trillion yuan in the first half of 2015, but the growth was down 0.2 percentage points from the rate seen in the first quarter, the NBS added.

The economic situation of China seems to be baffling in the second half of 2015, given the stock market rout that began in June and is bound to spill over to the real economy. As stock market is always the barometer of the economy, China's macro economy will be impacted by the stock market crash, which will lead to a shrinking in national wealth, a reduction in consumption, an increase in fundraising costs for enterprises and even bankruptcy of some companies which are helpless in seeking new financing. In the meantime, the massive stock market bailouts are consuming the Chinese government's monetary resources, which should have been used for what they should be used.

Economic slowdown is common in normally functioning economies. Mandatory setting of an economic growth target and having it pegged with officials' political careers is inappropriate and even dangerous, because it might lead to some negative impact.

One issue is the falsification of economic numbers. There have been reports saying that local GDP data were "man-made and therefore unreliable".

The other issue is that the economic deceleration has forced the Chinese government to carry out loose monetary policies, including interest rate cuts and reduction in reserve requirement ratio. It is said that the Chinese government is likely to adopt more policy easing similar to the 4 trillion yuan stimulus plan that the Chinese government launched to deal with the global financial crisis in 2008. But the efficacy of the 2008 bailout measures remains questionable as the economic sequel is hysteretic. Some economists said that China's then successful experience in maintaining its economic growth rate at 8 percent can be duplicated, but stressed that it might not be as efficacious as it used to be in the current situation where local governments are pervasively mired in a fiscal predicament due to the end of the golden age of the real estate market. In addition, the reckless investment will further increase overcapacity, which will cause corruption and resource waste.

Therefore, the Chinese government should not stubbornly stick to its goal of maintaining the economic growth rate at 7 percent for 2015. Instead, it should follow the rule of market.

(The article is translated and edited by Ding Yi)


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