China to Easily Overshoot Official 2012 Growth Target

Chinese Premier Wen Jiabao on Monday set a conservative GDP growth target of 7.5 percent for 2012, which economists and investment strategists think China will easily overshoot.

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“The target is one thing, the real growth rate is another. I am projecting 8.6 percent real GDP growth for this year,” Shen Jianguang, Chief Asia-Pacific Economist with Mizuho Securities told CNBC on Monday.

From 2004 onwards China has had a growth target of 7-8 percent, but the average real growth rate has been 10 percent, Shen said. In 2011, China grew 9.2 percent, surpassing the official target of 8 percent.

Shen adds that with a leadership transition in 2012, the target is more “symbolic” than realistic, as the government highlights its focus on economic rebalancing and income distribution.

David Greene, Senior Corporate FX Dealer at Western Union Business Solutions agrees that China is unlikely to meet the government’s growth expectations.

“The Chinese are fairly conservative with their own growth estimates and to move that down from 8 percent (in 2011) to 7.5 percent errs on the side of caution,” Greene said, adding that the target shift is merely a reflection of Beijing’s goal to lessen the country’s reliance on exports and investments and focus on more sustainable internal consumption and growth.

Chi Lo, CEO of brokerage firm HFT Investment Management, like Shen and Greene, says a 7.5 percent GDP growth target is the lower end of what is “tolerable growth” for Beijing. He is forecasting the economy to expand up to 8.2 percent this year.

“The government will remain pro-growth due to potential downside risk of growth,” Lo said, adding that the industrial output data, due out on Friday, are expected to come in weaker than January due to weakening economic momentum.

But Lo does not expect any aggressive monetary easing at the moment because the economy is slowing, and not “crashing.”

“There is no need for full scale easing including RRR (reserve requirement ratio) and interest rate cuts together and relaxation of policy restrictions on lending, investment etc. Full scale easing will only come later, after the second quarter,” he said.

Is Lower Budget Deficit Realistic?

While the GDP growth target is in line with expectations for Shen Minggao, Chief Economist for Greater China at Citi Global Markets, the fiscal deficit target for 2012 is lower than anticipated.

"Only number bit surprising to me is the fiscal deficit GDP ratio — which is only 1.5 percent, we were expecting around 2 percent or above," Shen said.

"This is actually weaker than expected. It will it create some worries about the growth sustainability in China this year."

The Chinese government will have to balance local government debt with economic growth in the near term by introducing a more "positive" fiscal policy, Citi’s Shen added.

"I think local government debt is a concern but at the same time, growth is slowing down quite significantly, because of the weakening export growth, and also because of the falling property sector investment," he said.