An adviser to China’s central bank has urged its leaders to set a more flexible economic growth target for 2017, thereby giving themselves greater scope for reforms.
Huang Yiping, of the People’s Bank of China (PBOC), suggests a range of 6% to 7% this year, compared with the targeted 6.5% to 7% in 2016, the official Xinhua News Agency reported. Last year’s range, which was the first in two decades, was down from 7% in 2015.
“The 6.5 percent target is just an average rate,” said Huang, who is an economics professor at Peking University, in an interview with the agency. “As long as employment is stable, a slightly wider growth target range in the short term will reduce the need for pro-growth efforts and give policy makers more room to focus on reforms.”
He added that many so-called “zombie companies” remain economically inviable yet were able to survive on government and bank assistance, reducing the overall efficiency of resource allocation in the economy.
Turning to the exchange rate of the yuan (CNY), Huang expects to be largely affected by investors’ expectations about growth, as the government faces some difficulties supporting it despite China’s sound economic fundamentals and huge foreign exchange reserves.
Capital outflows will “last for a certain period” as more Chinese residents look overseas to diversify their investment portfolio, Huang told Xinhua.
China’s president Xi Jinping has said that he wants annual economic growth to average at least 6.5% in the five years through 2020 to achieve the Communist Party promise of building a “moderately prosperous society” by that year with gross domestic product and income levels double those of 2010.
However, recent reports suggest that Xi is now open to growth below the 6.5% target due to rising debt and concern about an uncertain global environment following Donald Trump’s US election win. Hitting the target is no longer seen as essential if it involves too great a degree of risk.
In addition to slowing growth and rising debt, China’s officials are attempting to smoothly re-balance the economy from traditional growth drivers such as manufacturing and construction and accommodate newer ones such as consumer consumption struggle to compensate. Meanwhile, policy makers are focusing more on safeguarding the financial system.
The PBOC announced last week that it will tighten rules for banks to report cross-border customer transactions starting July 1 as part of stepped-up efforts to curb money laundering and prevent terrorism financing.
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