World Economy

China 2014 growth target: To cut or not to cut?

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The Chinese government on Tuesday began its annual Central Economic Work Conference (CEWC), where policymakers will set out the 2014 economic and reform agenda, including the closely-watched gross domestic product (GDP) target.

Whether the government maintains its 7.5 percent growth target or cuts it to 7 percent at the closed-door meeting will be a close call, economists say.

"Momentum in policy circles one month ago was biased toward 7 percent...However, momentum seems to have shifted toward 7.5 percent recently," Zhiwei Zhang, chief China economist at Nomura wrote in a note on Tuesday.

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In a recent report, government think tank China Academy of Social Science predicted growth could hit 7.8 percent in 2014, and, according to Nomura, such a forecast implies a 7.5 percent target.

The GDP target is viewed as a key signal on how serious the leadership is about carrying out reform, as well as an indicator of how fiscal and monetary policy may fare in the coming year.

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"If the government cuts the target to 7 percent, we would expect monetary policy tightening to persist and the government to tolerate pains in the short term in exchange for more sustainable growth, which we view as a positive policy stance for the long term," Zhang said.

"If the target is kept at 7.5 percent, the government would have to loosen monetary policy if growth slows in the first-half below 7.5 percent. They may build more infrastructure projects, which would boost growth in the short term but would likely push up inflation and heighten hard-landing risks in the future," he added.

While local news sources may report the target after the meeting, the official announcement will be in March 2014, during the National People's Congress.

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Beijing had maintained an economic growth target of 8 percent for eight years before cutting it in 2012 to 7.5 percent.

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The Chinese government has a solid track record for meeting, or even beating its target. In 2012, for instance, the economy grew 7.8 percent, well above the 7.5 percent target.

"In many countries - the growth target has a band above and below it. In China's case, the target is more like a floor," said Louis Kuijs, chief China economist at RBS, who also expects the growth target will be set at 7.5 percent.

"In the recent months, we have had clarity from highest levels in China that they definitely we want to see reforms and improve the quality of growth, but at the same time they need a good rate of growth and healthy climate in which they can undertake the reforms," he said.

Last month, for example, Chinese Premier Li Keqiang said growth of 7.2 percent is needed to maintain adequate employment, suggesting a tendency towards maintaining the current target instead of lowering it.

—By CNBC's Ansuya Harjani; Follow her on Twitter: @Ansuya_H