China orders more growth – and will get it

Chinese GDP growth targets, “once set, have a way of coming true”, says So next year, on 17 January, expect the government to announce that the economy expanded by 6.5%-7%, the targeted range set out at this week’s National People’s Congress, the “rubber-stamp parliament”.

Few believe that growth is anywhere near 7%, but we can expect it to tick up. Poor trade data, due to a lacklustre global economy and February’s Chinese New Year holiday, hit the headlines this week. But the overall outlook remains encouraging. Not only have capital outflows slowed, meaning the state won’t have to spend so much of its foreign-currency reserves on propping up the yuan, but “the rescue team of expanded monetary and fiscal stimulus… is on the way”, say Tom Orlik and Fielding Chen on Bloomberg. That means that in the long term China will have yet more debt to work off.

But for now, confidence in the growth outlook should rise. The state has set a budget deficit target of 3% of GDP, up from 2.3% last year, with much of the extra borrowing being spent on funding tax cuts rather than just more government spending. China is also aiming for money supply growth of 13%, up from 12% this year. Previous interest-rate cuts and loosened lending restrictions have already given borrowing a kick. New lending in January rose by $385bn, a record for a single month.

Meanwhile, Barclays notes that one particular gauge of money supply growth is at a four-year high. “A hard landing for the Chinese economy is not around the corner.” No wonder commodities markets are feeling more chipper.