China will cut its growth target to 7 percent next year in a sign of the government's determination to push through structural reforms and steer the economy on to a more sustainable path, one of the country's top investment banks has predicted.
With Communist party leaders gathered in Beijing now for a meeting that will set China's policy direction for the coming decade, investors and companies have been looking for clues about their strategic thinking.
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A lowering of the country's growth target – although unlikely to be announced until the annual Chinese parliament in March – would be an important distillation of the government's plans.
China has consistently exceeded its annual growth targets in practice, but a cut would still be an indication of Beijing's willingness to tolerate slower growth in the interest of addressing risks from rising debt levels to soaring property prices.
Beijing has aimed for 7.5 percent growth in recent years. China International Capital Corp, an investment bank headed by Levin Zhu, son of former premier Zhu Rongji, forecast in a report on Monday that the government will decide to lower next year's growth target to 7 percent.
CICC's analysts, led by chief economist Peng Wensheng, said the target cut would set the stage for 2014 as a crucial year for implementing reforms, following on from the Communist party plenary meeting that began in Beijing on Saturday and concludes on Tuesday.
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The reforms will be a process of "draining away the filth and letting in fresh water", the CICC analysts said. They added that the reforms to be set in motion by the plenum would focus on financial deregulation, boosting consumption and deflating the property market. "In the short term, the reform process won't necessarily be positive for growth," they said.
Official announcements from the plenum have so far been scant. China's official Xinhua news agency said in a commentary that reform was the "top priority" but it did not spell out in any detail what the reforms might entail.
CICC said the lower growth target would lead the central bank to keep monetary policy on a tighter footing, a shift that appears to have started already. On Monday, it reported that banks issued Rmb506 billion ($83 billion) in new loans in October, well down from September's Rmb787 billion. Overall new credit issuance, including China's shadow banks, was also much lower in October, falling to Rmb856 billion from September's Rmb1.4 trillion.
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"The October credit numbers point quite clearly to a firmer stance," said Louis Kuijs, an economist with Royal Bank of Scotland in Hong Kong. "We expect the firmer stance to be maintained in the coming quarters."