**Abstract**
Experts suggest that the "lower limit" of economic growth is defined as maintaining an annual GDP growth rate of at least 7.5%. Some government officials have hinted that there may be 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 structural adjustment must go hand in hand, ensuring a “stable and promising†outlook.
On July 9, Li Keqiang, a member of the Standing Committee of the CPC Central Committee and Premier of the State Council, held a symposium on the economic situation in several provinces in Guangxi. He emphasized the importance of enhancing the precision and foresight of regulatory measures, ensuring stability while taking effective actions to fulfill the main goals of economic and social development for the year.
He also stressed that macroeconomic regulation should take both short-term and long-term perspectives into account, keeping economic operations within a reasonable range. Key indicators such as the growth rate and employment levels must not fall below the “lower limit,†while inflation must remain under control, not exceeding the “upper limit.†Within this balanced framework, the focus should remain on structural adjustments, reform, and the transformation and upgrading of the economy.
Political economist Lu Zhengwei from Industrial Bank told *First Financial Daily* that the government’s statements indicate a renewed emphasis on “steady growth†under the guidance of “structural adjustment.†However, he noted that “steady growth†and “tuning the structure†must complement each other, rather than being mutually exclusive.
Although Li Keqiang did not explicitly define the “lower limit†and “upper limit†during his speech, Lu explained that the “lower limit†for economic growth refers to ensuring an annual GDP growth of at least 7.5%, while the “upper limit†for price increases is set at a CPI of no more than 3.5% throughout the year—both of which were the official targets set at the beginning of the year.
Some government officials revealed to the press that the “stable and promising†strategy is primarily reflected in investment, consumption, fiscal, and monetary policies. In particular, investment and consumption policies are expected to see some easing, including promoting information consumption, railway investment, shantytown renovation, urban infrastructure development, and energy-saving and environmental protection investments.
**Overseas Concerns About China’s Challenging Annual Target**
In his speech, Li Keqiang mentioned that since the start of the year, China's economic performance has remained relatively stable, with major indicators still within the expected range. The structural adjustment 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 persist.
Given the recent release of second-quarter economic data, it is speculated that the high-level statement reflects the government’s concerns about the economic slowdown in the first half of the year. Indeed, due to the continued deceleration of China’s economy in the first half of the year, many foreign observers remain skeptical about whether China can meet its annual growth target.
At the beginning of the year, research institutions generally predicted that China’s economic growth would reach around 8% this year. However, most international investment banks have since lowered their forecasts for China’s 2013 economic growth. For example, Morgan Stanley adjusted its forecast from 8.2% to 7.6%, while UBS and RBS also reduced their projections to 7.5%. ANZ Bank expects a drop from 7.8% to 7.6%, and Nomura Securities predicts a similar decline 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 indeed been weak, with demand falling short compared to previous years. The industrial growth rate slowed from 10.3% at the end of last year to 9.2% in May. Fixed asset investment growth fell from 21.2% in the whole of last year to 20.4% in January–May. Meanwhile, the trade surplus, which had reached 15.2% in December last year, has remained steady at around 12% this year. Overall, all the data point to a clear slowdown.
Recent foreign trade data also showed that China’s trade growth was only 0.3% in May and dropped into negative territory at -2% in June. Given the weak demand in major economies outside the U.S., China’s export engine has not performed well. More importantly, processing trade supports around 120 million jobs in China, so maintaining employment stability remains a critical 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 at the National School of Administration, told this reporter that the current downward trend in economic growth is not yet significant. Key indicators, including employment, remain relatively stable, and no sharp declines have been observed. Positive factors such as 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 believes the current economic situation can be described as “stable.†He said that both the growth rate and the “troika†(investment, consumption, and exports), along with employment and prices, are within a reasonable range, and there is no need to worry excessively about a sharp decline in the Chinese economy.
With consumption surpassing investment as the largest driver of China’s GDP growth, it has played a stabilizing role in the economy. For instance, 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 respectively, up by 12.83% and 12.34%. A recent interview in Changchun revealed that due to strong car sales, FAW Group is not concerned about overcapacity but rather insufficient capacity.
**The Government Will Coordinate “Stable Growth†and Structural Reform**
Currently, it seems that simple economic stabilization is not enough for China’s broader reform and adjustment goals. The reporter noted that Li Keqiang’s reference to “stable and promising†in his speech may signal that the government will not only continue to expand domestic demand but also push forward with reforms.
Li Keqiang stated that “stable growth†can create the space and conditions needed for “structural adjustment,†and that structural adjustment can provide new momentum for economic development. The two are complementary. Through reform, institutional barriers can be removed, injecting fresh energy into both “stable growth†and “structural adjustment.â€
Lu Zhengwei pointed out that there has long been a prevailing view in policy circles and the market that “stable growth†and “structural adjustment†cannot be pursued simultaneously. Some argue that achieving structural adjustment requires sacrificing economic growth, but this time, for the first time, the official stance clearly states that the two are not mutually exclusive but instead “mutually complementary.â€
Ba Shusong, deputy director of the Financial Research Institute at the State Council Development Research Center, said that “stability†does not mean stagnation, but rather a steady and progressive approach based on the current economic situation. It involves reasonable and modest measures. At present, the focus is on revitalizing existing financial resources and redirecting them toward the real economy, supporting structural upgrades and boosting domestic demand.
**Monetary and Fiscal Policies May Be Slightly Stimulative**
In response to the specific policy of “stable and promising,†some government officials have indicated that the focus will be on investment, consumption, fiscal, and monetary policies. Railway investment, shantytown renovation, and urban infrastructure construction will be key areas of focus.
For example, the government is determined to renovate more than 10 million shantytowns, which will help address internal urban disparities and reduce the threshold for urbanization. In terms of railway investment, official data show that from January to May this year, the national railway and joint venture railway network construction completed 132.265 billion yuan, a 25.5% increase from the same period last year. Total railway fixed asset investment reached 157.81 billion yuan, up 21.6% year-on-year.
Following the decentralization of intercity railways to local authorities last year, there have been recent reforms in railway investment and financing. Sichuan Province recently issued a plan stating that it will open up railway ownership and operation to social capital, leading the way in reforming the railway investment system.
However, some railway officials told the press that while current investment levels are stable, the workload in the coming stages is heavy, and multiple methods will be needed to address funding gaps.
In addition, fiscal policy faces constraints due to tight government funding. Li Keqiang proposed “activating the stock of money,†using unused and deposited funds, preventing misallocation, and blocking “leakage†of resources.
In terms of monetary policy, some experts believe that “activating the stock†is a form of loosening, while “revitalizing the stock†in monetary terms is actually tighter. This is the biggest policy issue currently. Experts believe that monetary policy in June was tight, but it is unlikely to remain as tight in the future, with a neutral stance expected. The RMB exchange rate is unlikely to continue appreciating and may remain stable or slightly weaker, potentially introducing asymmetric interest rate cuts.
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