Bloomberg News

Xi Says GDP Not Officials’ Sole Focus in Signal Growth to Slow

June 30, 2013

China's President Xi Jinping

Xi Jinping, China's president, has responded to China’s slowest growth in 13 years by calling for deeper -- and politically difficult -- market-oriented moves. Photographer: Feng Li/Getty Images

China’s President Xi Jinping said officials shouldn’t be judged solely on their record in boosting gross domestic product, the latest signal that policy makers are prepared to tolerate slower economic expansion.

The Communist Party should instead place more importance on achievements in improving people’s livelihood, social development and environmental quality when evaluating the performance of officials, the Xinhua News Agency reported June 29, citing Xi at a meeting on personnel management on the eve of the 92nd anniversary of the party’s founding.

Xi’s comments follow remarks he made in May that China won’t sacrifice the environment to ensure short-term growth, and take place as the world’s second-largest economy undergoes its worst cash crunch in at least a decade as the government seeks to wring speculative lending out of the banking system.

“Xi is further legitimizing the case for slower growth,” said Andy Mantel, chief executive officer of Pacific Sun Advisors, an asset manager in Hong Kong that invests in Chinese stocks. “It is important to let local government officials know there is less importance of non-stop economic growth. There will be less pressure for local government officials to pump up their economic growth forecasts.”

China needs growth of about 7 percent to double per capita gross domestic product by 2020 from the level in 2010, PremierLi Keqiang said May 27 in Berlin after meeting with German Chancellor Angela Merkel. That’s down from an average pace of 10.5 percent a year over the past decade, with growth driven by surging credit, government investment, and exports.

Cash Crunch

The credit crunch has increased chances that the government will miss its 7.5 percent annual target for economic growth this year, according to Goldman Sachs Group Inc. Xi’s comments “reinforce our view” that there is a 30 percent chance growth may slump below 7 percent in the third or fourth quarter, said Zhang Zhiwei, Nomura Holdings Inc.’s chief China economist in Hong Kong.

China’s banking regulator, in his first public comments since the country’s worst cash crunch in at least a decade, said June 29 the operations of its lenders won’t be disrupted because they’ve built up sufficient cash reserves.

Banks had about 1.5 trillion yuan ($244.4 billion) of cash reserves as of June 28 that could be used for payment and settlement needs, more than double what is usually required, Shang Fulin, chairman of the China Banking Regulatory Commission, said in a speech in Shanghai.

“The tight liquidity condition on the interbank market has been easing in the last few days,” Shang said at the annual Lujiazui financial conference. “This type of situation won’t affect the banking sector’s smooth operations.”

Banking Reform

The cash crunch on the interbank market exposes “deficiencies” in commercial banks’ liquidity management and their business structures, Shang said. The next phase of reform in the banking sector will focus on supporting the real economy and risk prevention, he said.

The one-day repurchase rate touched a record 13.91 percent on June 20 before tumbling on signs targeted injections of funds were being used to ease the cash crunch. The benchmark Shanghai Composite Index has declined 13 percent this year.

The slowing pace of economic growth in China remains within a “reasonable” range and the economy is stable, People’s Bank of China governor Zhou Xiaochuan told the same forum June 28 in his first comments since the cash crunch. Zhou also sought to soothe concerns of a further deceleration of growth, saying he’s fully confident in China’s economic prospects and financial system.

Integrity First

A recent review by the National Audit Office indicated that total local government direct and guaranteed debt may have risen 13 percent to 12.1 trillion yuan by the end of 2012 from the end of 2010, according to Moody’s Investors Service, citing its own calculations based on data in the auditor’s report that showed a 13 percent increase in the debts of a sample of 36 local authorities.

At the work meeting on personnel, Xi said that the Communist Party’s organization departments should place integrity before capability when promoting officials, and urged that disciplinary violations and corruption be punished during official selection procedures, according to Xinhua.

Cadres should be “true believers of Marxism,” exercise their power carefully and resist corruption, Xi said according to Xinhua.

“Xi’s speech includes a forward-looking recognition that obsessive emphasis on economic growth targets is obsolete and must now be balanced against vital environmental and social concerns,” said William Overholt, a senior research fellow at Harvard University’s John F. Kennedy School of Government in Cambridge, Massachusetts.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net; Kevin Hamlin in Beijing at khamlin@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net


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