Is China going to be forced to lower its growth target?

CHINA FINANCIAL - Report 09 Mar 2020 by Michael Pettis

Special points to highlight in this issue:

• The IMF is now projecting a 5.5 percent GDP growth rate for 2020, down from the 6.0 percent it projected in January. Officials there say that they expect growth in the first and second quarters to be so bad that it would become all but impossible to achieve anything above 5.5 percent.

• Some knowledgeable Chinese economists are even projecting a 2020 GDP growth rate of 5.0 percent, and this may include very senior people in the PBOC, while there are also rumors that Beijing will tell us that when they promised to double 2010 GDP by 2020, what they meant was that they would double it by July 23, 2021, the 100th anniversary of the founding of the Chinese Communist Party.

• Everyone agrees, however, that these projections are based on very uncertain estimates about the impact of Covid-19 on second quarter growth. I mostly agree with the lowered expectations. While I continue to think that Beijing is going to push for the original GDP growth target of “around 6 percent”, which in practice will probably now mean a little above 5.6 percent, there may be simple arithmetic constraints on its ability to do so, and these depend crucially on how quickly demand recovers in the second quarter.

Now read on...

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