China Provinces Cut Growth Targets in Sign Debt Concerns Heeded

China Provinces Cut Growth Targets in Sign Debt Concerns Heeded

By Bloomberg News – Feb 27, 2013

Almost half of China’s provinces are setting their growth sights lower in the wake of the central government’s emphasis on the quality of expansion over speed, a sign of an increased focus on tackling rising debt.

Fourteen provinces have set lower targets for gross domestic product expansion this year than in 2012 and the other 17 left their goals unchanged, according to Nomura Holdings Inc. The weighted average target has dropped to 9.9 percent from 10.3 percent, Citigroup Inc. calculates.

Scaling back regional politicians’ growth-at-any-cost attitudes may limit China’s rebound from its weakest expansion in 13 years. At the same time, it may mitigate concerns that rising local-government defaults will threaten the financial system and pollution will worsen as leaders complete a once-a- decade power handover next month.

“In the future, the central government may look at more indicators, including pollution and debt, in assessing local officials,” said Zhang Zhiwei, chief China economist at Nomura in Hong Kong and a former researcher for the International Monetary Fund. “You can’t continue the traditional way of accumulating heavy debts to push up GDP in your term and then leave the trouble to your successor.”

Growth Boost

The GDP targets may damp previous optimism that China’s economic growth would get a boost this year thanks to the traditional rush of new projects from officials appointed as regional leaders. Instead, rising political stars including Hu Chunhua in Guangdong and Sun Zhengcai in Chongqing have set lower goals, supporting incoming President Xi Jinping’s focus on “quality and efficiency” of growth.

Premier Wen Jiabao will formally announce this year’s country-wide economic targets when he delivers his final annual work report next week to the national legislature, which is set to approve appointments of Xi as president and Li Keqiang as Wen’s successor. The government will keep the growth target at 7.5 percent this year, Bloomberg News reported in December, citing two bank executives and a regulatory official briefed on the matter.

China’s leaders said after their annual central economic work conference in December that they will seek “sustained and healthy development” and omitted previous mentions of targeting “relatively fast growth.”

The central government has not published a national figure for local debt since the audit office in 2011 said it was 10.7 trillion yuan ($1.7 trillion) at the end of 2010.

Little Changed

Wen said last March that the level was little changed in 2011. Adam Wolfe, director of emerging Asia at Roubini Global Economics in London, estimates debt of 17.5 trillion yuan.

A rebound in property prices and record credit expansion are increasing pressure on the government to rein in liquidity and debt.

A research arm of the nation’s top economic-planning agency said yesterday that authorities should drain more cash from the financial system and regulators need to enhance oversight of banks’ off-balance-sheet business. The People’s Bank of China in December highlighted the need to control risks as an objective, a possible sign of growing concern that a surge in non-bank lending will lead to defaults.

A rebound in the benchmark Shanghai Composite Index (SHCOMP) has stalled on speculation the government will tighten policies. The stock gauge has fallen 5 percent since Feb. 6, following a 24 percent gain over about two months.

Coastal Leaders

Regional government officials may still be under pressure to pursue growth, “although some leaders in coastal areas have started to pay more attention to quality,” said Ding Shuang, a Hong Kong-based senior China economist with Citigroup.

Local officials have also set lower growth targets in anticipation that the central government will gradually make monetary policy less loose, said Ding, who previously worked for the People’s Bank of China and IMF.

Regional expansion targets this year range from 7.5 percent in Shanghai to 14 percent for Guizhou. Last year, fourteen provinces missed their growth goals, according to Nomura.

The provinces are known for reporting growth rates that often exceed the national pace calculated by the central government. The combined GDP released by Chinese provinces for 2012 was 5.8 trillion yuan more than the countrywide figure published by the National Bureau of Statistics, according to the state-run China Daily. That’s about the size of Indonesia’s economy.

Pickup Forecast

China’s economy, the world’s second-largest, expanded 7.8 percent last year, compared with the average 10.6 percent rate over the previous 10 years. Economists surveyed by Bloomberg News forecast a pickup to 8.1 percent in 2013, based on the median estimate.

Any further slowdown resulting from lower growth goals or other forces will show how willing Xi and Li are to put up with weaker expansion. “When China’s growth dips to a level of 7 percent, it will pose a testing moment for the new leadership,” Nomura’s Zhang said. “The current leadership proved that they can’t tolerate any growth rate below that, and now the eyes are on the new leaders.”

–Zhou Xin. Editors: Scott Lanman, John Liu

To contact Bloomberg News staff for this story: Zhou Xin in Beijing at xzhou68@bloomberg.net