China likely to miss 2014 GDP growth target

Key indicators do not give much room for optimism, say experts

Economic growth in China will slow to the lowest level since the global financial crisis of 2008 during the fourth quarter, leaving little chance of any rebound in industrial production and fixed-asset investment growth, economists said on Friday.

According to the National Bureau of Statistics, industrial output growth fell to a three-month low of 7.2 percent in November, compared with 7.7 percent in October. Fixed-asset investment growth during the first 11 months of the year fell to 15.8 percent from 15.9 percent in the January-October period, the NBS said.

Retail sales growth rose to a three-month high of 11.7 percent in November from 11.5 percent in October, boosted by the "Singles' Day" online shopping carnival.

Due to the worse-than-expected economic indicators, GDP growth in the fourth quarter may fall below the 7.3 percent level seen in the third quarter and fail to reach the full-year target of 7.5 percent, experts said.

"It is likely that the government will ease the monetary policy further to stimulate domestic demand, which has remained sluggish for most part of the year," said Liu Ligang, chief economist of the ANZ Bank in China.

The Central Economic Working Conference, which ended on Thursday, and the government have clearly identified "maintaining stable growth" as its top priority for next year.

Other major tasks include nurturing new growth points, transforming the agriculture development mode, improving economic geographical distribution, strengthening the social security system and improving people's livelihoods.

The government confirmed that the overall policy stance for next year will remain largely unchanged but will see some tweaks such as further strengthening of the "proactive fiscal policy" and keeping the monetary policy more balanced between tightening and loosening.

Some experts said that policymakers may want the budget deficit to widen further, before easing the monetary policy, as it would help prevent any unexpected economic deterioration.

Louis Kuijs, chief economist in China at the Royal Bank of Scotland, said: "The leadership is observing the associated underlying trends as China's economic development enters a new phase, and calling on policymakers to lead those trends with economic policy and reform.

"We expect policymakers to combine tightening up regulations on shadow banking and containing the associated risks with cutting benchmark interest rates further and lowering reserve requirement ratios in 2015," he said.

With the top leadership signaling that the Chinese economy has entered a "new normal" stage, Kuijs believes that the marginal effect of stimulus policies has decreased. "China needs to fully solve the overcapacity problem and explore its future direction in industrial development," he said.

In light of the recent policy moves, it is clear that the monetary policy should not be too tight, said a research note from Goldman Sachs.

"The meeting statement also emphasized the need to utilize all three demand drivers - consumption, investment and exports to drive growth. This suggests a more positive view on the outlook for experts and investment, and also seems to reflect a greater sense of realism in policy making," the report said.