China cuts its growth target to 7.5%

5th March 2012

Speaking at the start of the annual National People's Congress (NPC) in Beijing, Premier Wen Jiabao lowered China's economic growth outlook for 2012 to 7.5%. This is lower than the country's traditional growth forecast of 8 percent. The target is a signal that China wants to rebalance its economy away from one that is overly reliant on exports to one that is driven by consumer demand.

He said: "We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach."

Despite the growth forecast, Paul Cavey, an economist with Macquarie Bank in Hong Kong thinks the target acts more as a bar to get over. "In recent years, the GDP target has obviously always been a minimum acceptable floor rather than a ceiling, so I think it is more likely that in the government's heart of hearts, it is leaning on growth of a bit above 8 percent."

"The slower growth numbers just reflect the reality that growth is going to be slower because the rest of the world is going to be weaker."

Wen's annual state-of-the-nation report to parliament comes on the heels of a report by the World Bank and an influential Chinese government think-tank, which warned that China could face an economic crisis unless it scaled back its vast state-owned enterprises and make them operate more like commercial firms.

Indeed, Zong Qinghou, China's second-richest man also called for the government to increase the role of private sector enterprises."The government has become a monopoly company that invests in everything."

"The biggest hurdle facing China's economy now is that the government's income is too high and the people's income is too low."

The news of China's growth forecast rattled markets as Asian stocks fell, paring gains from last week that saw the benchmark index post its longest weekly winning streak on record.


More from Mindful Money:

Can China avoid a hard landing?

East meets West: Is China’s growth good for the world?

China's love of luxury

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