As Slowdown Continues in China, Fiscal Squeeze Anticipated to Challenge Xi’s Growth Targets

Published Date : Dec 10, 2015

According to a sizeable minority of economists in China who flag the restraints of traditional policy tools, the pared-back minimum growth rate of the country, still may be too high. Monetary easing strategies adopted by the policymakers have already led to six interest-cuts in the country since the last year. These strategies although have done little to spur an economy at risk of exhibiting a lesser growth target than 7 percent aimed for 2015. The slowdown also made fiscal stimulus even more difficult, through embracing income and tax revenue from land sales carried out by local authorities. 

The prevailing dynamics of the China economy definitely have made President Xi Jinping’s goal of attaining a GDP gain of at least 6.4 per cent every year for the next five years more questionable than ever. More than third of analysts surveyed by Bloomberg News projects China to miss growth target set by Xi for the coming year. For 2017, the median estimate is set at 6.3 per cent. 

Since consumer spending and services are not yet strong enough to tip the balance, pressure is mounting on the Central Government to adopt deeper fiscal deficits, leaving the risk of accentuating nation’s depth to persist. As of now the officers are keener on expanding the bond swap by local government that is likely to give the regional authorities a much needed break from financing costs for previous projects. 

Speaking about the prevalent conditions in China, Victor Shih, author of the book called “Factions and Finance in China: Elite Conflict and Inflation” said that growth fiscal income in the country has been sluggish yet this does not deter government from rolling out several expenditure initiatives. He further added that deficits in the ongoing year will be higher than it was earlier anticipated. Sustained growth during deficits is likely to erode confidence of investors, Victor Shih added.