Based on a supply-side estimate of potential growth and projections of the main components of demand; Bloomberg's Chief Economist Tom Orlik notes that China potential growth - the rate at which the economy could expand when firing on all cylinders - will slow to 7.1% in 2016 and 7.0% in 2017 from 7.3% in 2015. The government's growth target for 2016 is 6.5-7% and - based on the 13th Five Year Plan - a minimum of 6.5% from 2016-2020.
And that is why China is starting to manage expectations as the Xinhua news agency reported on Wednesday, citing the head state planner, that China will need "arduous efforts" to meet annual economic targets, with the economy expected to be under continued pressure in the second half of the year.
As Reuters reports, the comments from Xu Shaoshi, head of the National Development and Reform Commission (NDRC), come as China's economy shows signs of stabilizing, but concern remains as to the sustainability of growth driven by government investment and the property market.
Xu, however, said he was confident China "could meet major annual targets in economic growth, employment, commodity prices and residents' income", according to the state news agency.
"Great difficulties remain in meeting goals for investment and trade," Xinhua quoted Xu as saying.
"Currently, the foundations for stable economic development are not solid enough and downward pressure remains large, with difficulties hard to underestimate."
Despite the weakest economic growth in 25 years, government sources have said policymakers do not see the need to reduce interest rates or bank reserves amid evidence companies and banks are hoarding cash.
The focus instead has been on structural reform and fiscal measures...
"China will continue to design and implement targeted and flexible macro-control measures, and pursue a proactive fiscal policy and a prudent monetary policy," Xu said, according to Xinhua.
On the fiscal front, finance minister Lou Jiwei said China was considering higher export rebates for some mechanical and electrical products, Xinhua reported.
Xu concluded by warning of regional polarization, difficulties with farmers' incomes and stable demand growth, and potential risks in finance and employment, as challenges facing the economy... but apart from that, everything is awesome??!!
And sure enough it was proven awesome tonight when, right on cue ahead of the weekend's G-20 gathering, Bloomberg reports that China’s official factory gauge unexpectedly rose last month to the highest level in almost two years, suggesting a weakening in July was flood-related and temporary (even though Services PMI dropped and Aussie PMI crashed)...
The manufacturing purchasing managers index rose to 50.4 in August, the statistics bureau said Thursday, up from July’s 49.9 and compared to the 49.8 median estimate of economists surveyed by Bloomberg. The non-manufacturing PMI stood at 53.5 compared with 53.9 in July. Numbers above 50 indicate improving conditions.
"The number is quite surprising, but still reasonable following the policy support in some sectors," said Zhu Qibing, chief macro economy analyst at BOCI International (China) Ltd. in Beijing."The PBOC will refrain from more easing, but won’t tighten immediately."
Measures of new orders, purchases quantity and input prices paced the PMI rebound. But the gains weren’t shared equally, with large enterprises reporting improved conditions even as medium and small firms deteriorated, the data showed.
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So - China is fine (despite currency turmoiling) because floods across southeastern regions responsible for about a fifth of China’s economic output interrupted production in the summer... so that's good news right? Except the promise of more stimulus is now less likely... especially a broad-based stimulus. Still, Chinese stocks were the best in the world in August...