More NewsChina’s New Growth Target Reflects New Realities, Says Moody’s

China's New Growth Target Reflects New Realities, Says Moody's

China’s authorities have begun to prepare for a rebalancing of the economic roles of the public and private sectors, and which if successful would imply a fundamental realignment in the country’s political economy over the next decade, according to Moody’s Investors Service. In a special report, Moody’s has said that a new phase of structural policy reforms is coming into focus following the Chinese government’s announcement of a new, lower annual gross domestic product (GDP) growth target of 7.5%.

“The new target underscores the government’s desire to engineer a soft landing, consistent with its long-term goal of seeking more balanced growth, decreasing the economy’s reliance on investment and exports, while increasing the share of consumption,” said Tom Byrne, a senior vice president (SVP) with Moody’s sovereign risk group. “In addition, we believe the authorities currently have time to prepare for this rebalancing.”

The report is entitled, ‘Lower Growth Target Reflects China’s New Realities’, and was authored by Byrne and Matt Robinson, Moody’s director of sovereign research.

“This rebalancing of the economy is especially important if China is to maintain a relatively rapid pace of economic growth well above the world average growth rate,” says Byrne. “Furthermore, the natural slowing of growth from diminishing export competitiveness and productivity gains provides the impetus for this new round of strategic reforms.”

From a broad perspective, the reforms would affect state enterprises, corporate governance, private sector development, the urban residential hukou system, and financial sector liberalisation. The report further says that financial sector reform is crucial to China’s ability to better allocate capital and enhance its sovereign credit profile.

Such reform would include commercializing the banking system, allowing the market to set interest rates, deepening domestic capital markets – including the establishment of a municipal bond market – and developing the sector’s legal and supervisory framework.

On the issue of whether China can avoid a hard landing, the report says that Moody’s also sees growth as remaining relatively robust over the medium term, provided that the country is spared severe economic or political shocks.

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