China: Policymakers likely to maintain a high GDP growth target – Goldman Sachs

Analysts at Goldman Sachs think the Chinese real GDP growth target is likely to be 6.5%, or very close to it (versus the 2016 target range of 6.5%-7.0%). 

Key Quotes

“While we and many others have argued that policymakers should lower or eliminate the growth target, it is still an important anchor for bureaucrats across the government and at the provincial level.  Also, senior officials (up to and including President Xi) have vowed publicly to keep roughly this pace of growth through the end of the decade.  While recent media reports have suggested this stance may be softening, we do not think that the tolerance for underperformance will be large—especially in a key leadership transition year—and we would consider a miss of less than half a percentage point, as occurred in 2015, as broadly in line with the target.”

“In terms of the actual growth outcome, we also expect a 6.5% real GDP outturn. If anything, risks at this point may be skewed slightly to the upside for the full-year number given strong momentum into yearend 2016. Other measures of growth, including our China Current Activity Indicator, may lag GDP slightly, but also have shown strong momentum lately (our latest CAI reading is 6.4% annualized on a three-month/three-month basis).  We expect some growth weakness in Q1 as policy tightening late in 2016 takes effect, but think this will be transitory and fiscal/credit stimulus ratcheted up to the extent required.”