China: 2012 Growth Target Cut, It Doesn’t Matter

China aims to grow its economy by 7.5% in the coming year, the last where the current leadership of the country will be in control before being replaced by a new team later in the year.

The cut, from the 8% target of the past seven years, got some western commentators talking about 'China boom slows' and such like.

But a couple of points have to be made: first is that China has not met this target once in the past seven years, and has in fact exceeded it, most recently with the 9.2% growth reported for 2011 and 10.3% in 2010.

Secondly, China has also had a target of 4% for consumer price inflation for the past year (up from 3%) and that has been exceeded for the past year, especially in July when it an annual rate of 6.5%.

While 4% remains the target for 2012, investment bank, UBS forecast that the CPI would fall to an annual rate of 3.6% in February.

So take the cut with a grain of salt.

But there are signs the government is looking for slower levels of activity this year.

Worries about the health of Europe and the US, China's two largest export markets, are seen in the government's target to increase total trade by just 10% this year, compared with last year's increase of 22.5%.

The targets set by the government each year are usually very conservative, allowing them to be exceeded comfortably, but they are regarded as a useful indicator of Beijing's economic intentions.

And while targets matter in formal economic plans, such as we have in China, they are nothing more than a compromise, and will be changed for 2013 with the new leadership group in charge because the new five year plan calls for growth of 7% a year.

Premier Wen Jiabao said yesterday the cut in the target growth rate was being made to help reduce the pressures the country's recent strong growth rate are causing and the still too high level of inflation (4.5% annual in January).

This Friday we will find how growth, inflation, production, investment, imports and exports went last month, all figures that have not been influenced by the 8% growth target.

"Here I wish to stress that in setting a slightly lower GDP growth rate, we hope to make it fit with targets in the Twelfth Five-Year Plan, and to guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development and making economic development more sustainable and efficient, so as to achieve higher-level, higher-quality development over a longer period of time," reads the report which was distributed to the media (and quoted on Xinhua, the government news website).

The Chinese government has set the main theme of this year's economic and social development as "make progress while maintaining stability" at a tone-setting central economic work conference in December last year.

China will continue to follow a proactive fiscal policy and a prudent monetary policy, carry out "timely and appropriate anticipatory adjustments and fine-tuning", and make its policies "more targeted, flexible, and anticipatory", according to the report.

"To achieve steady growth, we will continue to expand domestic demand and keep foreign demand stable, vigorously develop the real economy, work hard to counter the impact of various factors of instability and uncertainty at home and abroad, promptly resolve emerging issues that signal unfavorable trends, and maintain stable economic performance," reads the report.

"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," Mr Wen said in his annual work report to the National People's Congress (NPC), which started yesterday.

The fiscal deficit target for 2012 is 1.5% of GDP, up from the 1.1% of GDP that was delivered in 2011.

Mr Wen also pledged to curb speculative demand in the property market, and said the Yuan would be kept "basically stable" with strengthened two-way flexibility in the closely managed exchange rate.

And he highlighted that the government would take action to solve the local government debt problem, regarded by many investors as the key risk to fiscal sustainability with about 10.7 trillion Yuan ($1.55 trillion) owed by local governments, according to government figures at the end of 2010.

Mr Wen and President Hu Jintao, both 69, are approaching the end of their decade in power.

The Communist Party will install a new group of leaders by the end of 2012, and Mr Wen and Mr Hu will then step down as premier and president early next year.

Xinhua also reported that China will deepen the reform of its financial systems by improving services for small and micro businesses, and making Renminbi convertible under capital accounts.

According to a report distributed to the media yesterday, Mr Wen said the government will ensure orderly development of small financial institutions, and improve the systems and mechanisms that serve small and micro businesses as well as agriculture, rural areas and farmers.

China hopes to complete 5 million units of low-income housing this year and start construction of another 7 million units as part of an effort in improving people's living conditions, according to a government work report delivered by Premier Wen Jiabao at the parliament's annual session Monday.

China has plans to build around 36 million of these low cost units by 2015.

"We will work speedily to improve the system for constructing, allocating, managing, and recalling low-income housing units," Wen said in the report.

In 2011, China completed 4.32 million units of low-income urban housing and began construction on a further 10.43 million units, according to the report.

These units are providing an important source of demand for steel, and therefore for Australian iron ore and coal.

Wen said China will implement and improve policies and measures to discourage speculative or investment-driven housing demand, and further regulate the real estate market.

We will work steadily to make the RMB convertible under capital accounts and expand the use of RMB in cross-border trade and investment," the report says.

The government will also improve both initial public offerings and delistings, and ensure better protection of returns on investors' money and their rights and interests, according to the report.

All ambitious and all for consumption in China and among members of the Communist Party and its friends.