China to tolerate 7 percent growth ‘before stimulus’

BEIJING - Reuters

China’s new leaders are likely to tolerate 7 percent growth in the economy before triggering fresh stimulus to lift activity, according to sources. AFP photo

China’s new leaders have adopted a greater tolerance for a slowdown in the economy than their predecessors and are likely to allow quarterly growth to slip as far as 7 percent before triggering fresh stimulus to lift activity, sources say.

The government of President Xi Jinping and Premier Li Keqiang has flagged for some time that the rapid GDP growth of the past three decades needed to shift down a gear as the economy moves towards consumer-led expansion. But it was not clear where Xi and Li would draw the line in the sand, leaving financial markets guessing over how the government would respond to successively weak economic data.

Government economists at top think tanks involved in policy discussions say that line is likely to be 7 percent, compared with their predecessors who implicitly observed a level of 7.5 percent to 8 percent.

“The new leaders’ tolerance of economic slowdown is definitely higher than their predecessors,” said Zhang Yongjun, senior economist at China Center for International Economic Exchanges (CCIEE), a well-connected think-tank in Beijing.

“They understand that China’s potential growth rate has been falling. The minimum growth rate that they can tolerate has been shifted downward and it’s likely to be 7 percent,” he said.

That does not mean Xi and Li have abandoned the mandated annual growth target of 7.5 percent. If that appears to be under threat, they will act, the government economists say.

Economic growth slipped to 7.7 percent in the first quarter compared with a year earlier, down from a rate of 7.9 percent in the previous three-month period.

Job concerns

“They (leaders) don’t need to panic as long as the employment situation remains stable,” said Zhu Baoliang, chief economist at the State Information Center, an influential government think-tank in Beijing. “If the employment situation worsens, they may have to take action.”

The economy created 3.4 million new jobs in the first quarter, slightly higher than a year earlier thanks to the services sector, labor ministry data shows.

However, a record high of nearly 7 million college graduates are expected to flock to the jobs market this year, up by 190,000 from last year, according to Chinese media.

In addition, demand for migrant workers is showing signs of weakening based on data from the National Bureau of Statistics, which shows that the average wage rise in 2012 of 11.8 percent was a sharp slowdown from 21.2 percent in 2011.