Having trouble viewing this email? View online.
Fitch Ratings
China NPC Shows High Growth Targets Still the Priority
“Growth should remain strong enough to provide the authorities scope to continue addressing macro-financial risks. ”
Dan Martin | Senior Analyst
Most Read
China's National People's Congress underscored a continued adherence to GDP growth targets, in line with building a "moderately prosperous society" by the 100-year anniversary of the Communist Party in 2021. Efforts to contain financial risks will also remain a focus, bolstered by the authorities' confidence in the strong growth momentum sustained over the past year.

Nevertheless, a slowdown could test the improved policy balance between growth and financial stability, and might trigger a reversion to a more expansionary policy stance.

The 2018 macroeconomic targets announced at the NPC indicate broad stability in policy settings, with the GDP growth target effectively unchanged from 2017 at about 6.5%. This implies a slowdown from 2017, when the economy outperformed the target, expanding by 6.9%. The 2018 target is consistent with our own forecast, which reflects tighter credit conditions and a cooling property sector.

Growth should remain strong enough to provide the authorities scope to continue addressing macro-financial risks through most of this year. They made use of improved global activity and strong domestic momentum to advance reform and tighten financial regulation in 2017. 
Fitch's augmented measures of credit growth also show a marked deceleration, with overall financial leverage increasing only moderately over the past year.

The slowdown in credit growth has been driven mostly by measures to curb risks associated with shadow banking and interbank lending. These efforts have reduced complexity in the financial sector and lowered the near-term prospects of a financial shock. That said, leverage growth was also contained last year by a sharp acceleration in nominal GDP growth, as producer prices surged due to capacity cuts tied to supply-side reforms. This is unlikely to be repeated.

A key policy uncertainty would be the government response if, as we expect, real GDP growth slows more sharply towards the end of 2018. Continued efforts to address financial vulnerabilities through an economic slowdown would point to a lasting shift in policy settings, while reversion to stimulus would signal that growth remains the priority.

A major political development at this NPC is the probable removal of the presidential two-term limit, which underlines President Xi's consolidation of power. More centralised decision-making could speed up structural reform in the short run, but concentration of power also raises the risk of policy mistakes as China's economy grows in size and complexity.
TSF vs GDP.png
James photo.jpg
2018 Milken Institute MENA Summit: China's One Belt One Road 
James McCormack, Global Head of Sovereign and Supranational ratings, joins thought leaders in Abu Dhabi to assess China's One Belt One Road Initiative, as a part of Fitch Rating's sponsorship of the Milken Institute event.
Latest Research
Linked In