Ever since the Asian financial crisis of 1998, China’s economy has overshot the government’s annual growth target, often by a wide margin. It has become clear that these “targets” are not like bull’s-eyes in archery; they are more like the bar of a high jump. This year, however, China’s economy is likely to brush the 7.5% bar it has set itself. According to figures released this week, its GDP grew at precisely that pace in the year to the second quarter, having grown by 7.7% in the first. Some predict less than 7.5% growth for the year. Others fear it may miss the mat altogether.
Since a cash crunch in June, when its central bank withheld liquidity from the banking system to punish reckless lenders, China has become a big source of worry for the world economy. But the latest figures suggest that the global economy is still hurting China more than the other way round. The country’s domestic demand in the first half of the year was enough to support 9% growth, according to Louis Kuijs of the Royal Bank of Scotland, but weak exports sapped the economy’s momentum.
This export weakness owes something to the strength of China’s currency. Since 2010, its trade-weighted exchange rate has risen by more than any of the other 60 currencies tracked by the Bank for International Settlements. A strengthened yuan has helped to wean China off export-led growth, but its shift to a consumer-led economy has been more fitful. The IMF this week argued that China’s growth has become “too reliant on investment and an unsustainable surge in credit”. Investment again contributed the majority of China’s growth in the first half of the year.
The figures did reveal other kinds of rebalancing. Services grew faster than industry. Credit, broadly defined, slowed and the share of credit provided by the shadow banking system shrank. Reining in credit, the IMF argued, is a more urgent task than “shoring up growth”.
China’s prospects for the rest of 2013 depend on whether the new leadership feels obliged to meet its growth target. Some doubt was cast on its commitment last week when China’s finance minister, Lou Jiwei, appeared to forget what the target was. On a visit to America, he said the goal this year was 7% growth and even 6.5% growth would not be a big problem.
His remarks were changed to 7.5% in official reports. Mr Lou’s boss, Li Keqiang, China’s prime minister, also said this week that his wish to change the mix of China’s growth does not mean he is indifferent to the pace. He may boost demand by spending more on public housing, railways and IT infrastructure. China can still maintain stability, the IMF said, but “the margins of safety are narrowing”. There will be no repeat of the 2009 stimulus, but the government has not ruled out giving the economy a leg-up over the bar.