**Abstract**
Experts suggest that the "lower limit" of economic growth is to ensure an annual GDP growth rate of at least 7.5%. Some government officials expect some relaxation in investment and consumption policies. After consistently emphasizing the three key economic tasks—“stable growth, restructuring, and reformâ€â€”the Chinese government has further clarified that stable growth and restructuring must go hand in hand, creating a “stable and promising†outlook for the economy.
On July 9, Li Keqiang, member of the Standing Committee of the CPC Central Committee and Premier of the State Council, hosted a symposium on the economic situation in several provinces and regions in Guangxi. He emphasized the need for more targeted and forward-looking regulation to maintain stability while achieving the main goals of economic and social development throughout the year.
He also stated that macroeconomic regulation should take both short-term and long-term perspectives into account, ensuring that economic growth, employment levels, and other key indicators remain within acceptable ranges. Specifically, the growth rate should not fall below the “lower limit,†and inflation should not exceed the “upper limit.†Within this reasonable range, the focus should be on structural adjustments, reform, and the transformation and upgrading of the economy.
Political economist Lu Zhengwei from Industrial Bank told the *First Financial Daily* that the government’s statements indicate a renewed emphasis on “steady growth†under the guidance of “structural adjustment.†However, he stressed that “steady growth†and “structural adjustment†must complement each other.
Although Li Keqiang did not explicitly define the “lower†and “upper†limits in his speech, Lu believes the “lower limit†refers to an annual GDP growth of no less than 7.5%, while the “upper limit†for inflation is set at 3.5% for the whole year—both targets set by the Chinese government at the beginning of the year.
Some officials have indicated that the “stable and promising†policy will mainly involve investment, consumption, fiscal, and monetary policies. There are expectations of some relaxation, especially in areas such as promoting consumption (including information consumption), railway investment, shantytown renovation, urban infrastructure, and energy conservation and environmental protection projects.
**Overseas Concerns About China's Challenging Annual Target**
Li Keqiang noted that since the start of the year, China’s economy has remained relatively stable, with major indicators still within the expected range. Economic restructuring has progressed steadily, and the transformation and upgrading of the economy have shown signs of improvement. However, the economic environment has become more complex, with both favorable and unfavorable factors coexisting. While there is growth momentum, downward pressures remain.
The release of second-quarter economic data suggests that the government may be concerned about the slowdown in the first half of the year. In fact, due to the continued economic slowdown in the first half of the year, many foreign observers are doubtful about whether China can meet its annual growth target.
At the beginning of the year, research institutions generally forecasted China’s economic growth to be around 8%. However, most international investment banks have since lowered their forecasts for 2013. Morgan Stanley adjusted its GDP growth forecast from 8.2% to 7.6%, while UBS and RBS also reduced their projections to 7.5%. ANZ expects a drop to 7.6%, and Nomura to 7.5%. Barclays and Goldman Sachs have even set their latest forecasts at 7.4%, which is below the official target.
China’s macroeconomic performance has been weak, with demand weaker than in previous years. The industrial growth rate declined from 10.3% at the end of last year to 9.2% in May. Fixed asset investment fell from 21.2% in 2012 to 20.4% in January–May. Meanwhile, the trade surplus, which had reached 15.2% in December 2012, has remained around 12% since the start of this year. All these figures point to a clear slowdown.
Recent foreign trade data also showed that China’s trade growth slowed to just 0.3% in May, and dropped into negative territory at -2% in June. With weak global demand outside the U.S., China’s export-driven economy has struggled. Moreover, processing trade supports about 120 million jobs, so maintaining employment stability remains a major challenge for the government.
**Domestic Research Supports Economic Stability**
Unlike overseas analysts, Chinese economists tend to use the word “stable†to describe the current economic situation. Ding Maozhan, director of the Research Office of the National School of Administration, said in an interview that the downward trend in the economy is not yet significant, and key indicators like employment have remained relatively stable. Many positive factors, including investment and consumption, have helped keep the economy running smoothly.
Ding added that while there is downward pressure, it is not as severe as often portrayed. Lian Ping, chief economist at Bank of Communications, also described the current economic situation as “stable.†He noted that GDP growth, the “troika†(investment, consumption, exports), employment, and prices are all within a reasonable range, and there is no need to worry about a sharp decline.
With consumption surpassing investment as the largest driver of GDP growth, it has played a stabilizing role. For example, data from the China Association of Automobile Manufacturers show that car production and sales in the first half of the year reached 10.517 million and 10.7822 million units, up 12.83% and 12.34%, respectively. FAW Group, for instance, is not worried about overcapacity but rather insufficient capacity due to strong demand.
**The Government Will Coordinate “Stable Growth†and Structural Reform**
It seems that simple economic stabilization is not enough for China’s broader reform and adjustment goals. Li Keqiang’s mention of “stable and promising†in his speech indicates that the government will continue to expand domestic demand while pushing forward with reforms.
Li emphasized that “stable growth†creates space for “structural adjustment,†and that structural changes can add momentum to economic development. The two are mutually reinforcing, and through reform, institutional obstacles can be removed, injecting new energy into both “stable growth†and “structural adjustment.â€
Lu Zhengwei pointed out that there has been a common belief in policy circles that “stable growth†and “structural adjustment†are incompatible. However, this time, the government clearly states that they are complementary, not exclusive.
Ba Shusong, deputy director of the Financial Research Institute at the State Council Development Research Center, said that stability means steady and progressive progress based on real-time economic conditions. At present, the focus is shifting capital toward the real economy, supporting structural transformation, improving people’s livelihoods, and expanding domestic demand.
**Monetary and Fiscal Policies May Be Mildly Stimulative**
In response to the “stable and promising†policy, some officials revealed that the measures will primarily focus on investment, consumption, fiscal, and monetary policies. Railway investment, shantytown renovation, and urban infrastructure will be key areas.
For example, the government plans to rebuild over 10 million shantytowns, which will help reduce urban-rural disparities and lower the threshold for urbanization. In terms of railway investment, data show that from January to May, the national railway and joint venture railway construction completed 132.265 billion yuan, a 25.5% increase compared to the same period last year.
Following the decentralization of intercity railways last year, recent reforms in railway investment and financing have seen Sichuan Province open up railway ownership and operations to social capital. However, some officials note that although current railway investment is stable, the workload in the coming months will be heavy, requiring multiple funding solutions.
Fiscal constraints may be the biggest challenge in implementing current policies. Li Keqiang proposed “activating the stock of money†by using unused funds and preventing misallocation. In monetary policy, experts believe that while fiscal activation is somewhat loose, monetary policy is actually tight. This is the main policy issue at the moment. Experts predict that monetary policy in June was tight, but future policies will likely remain neutral. The RMB exchange rate may stay flat or slightly weaken, potentially leading to asymmetric interest rate cuts.
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