China likely to expand 6.5 pct in 2017, 6.3 pct next year: Nordea Bank

At the National People’s Congress (NPC) in March, an annual forum for officials to plan economic policy, the government affirmed its commitment to growth stability. Maintaining stable growth was ranked first among the government’s top four economic priorities, ahead of structural reform, bubble control and risk prevention.

The annual real gross domestic product (GDP) growth target for this year was set at around 6.5 percent, marginally lower than the range of 6.5-7 percent last year. Both president Xi Jinping and premier Li Keqiang have repeatedly said that China must maintain 6.5 percent GDP growth through 2020. Chinese leaders’ obsession with stability is nothing new, but it is particularly important this year when a twice-a-decade leadership reshuffle will take place in the autumn.

"For this reason, the government will seek to prevent a shock to the economy or financial markets at any cost. We have revised up our growth forecasts to 6.5 percent this year and 6.3 percent in 2018 from 6.2 percent and 6 percent, respectively," Nordea Research commented in its latest report.

The stability focus implies a continuous accommodative fiscal policy. The fiscal deficit target for this year was maintained at 3 percent of GDP. Since nominal GDP is expected to grow by 8.5 percent, the government has leeway to increase public expenditures.

While the overall monetary stance will remain supportive, a marginal tightening could occur to address the rising concern about leverage-financed speculation and the resultant financial risk. Short-term interest rates have already been raised by 20 basis points, leading to higher costs for short-term bill financing.