President Xi reiterated the official targets of doubling the GDP and income per capita by 2020 (from 2010 levels) when he first took office at the 1st plenum session of the 18th Communist Party Central Committee (CPCCC) in November 2012.4 This implies average GDP and income growth of 6.6-6.7% over 2016-2020, by our estimates. China government's official 'bottom line' during the 13FYP would be c.6.5% growth, though actual growth on the ground could be lower, says Barclays.
A speeding up of capacity cuts and factory closures could lead to an even sharper slowdown than we currently forecast, but may result in higher growth potential in the medium term if capital allocation and efficiency in the economy improve. However, as the current CPCCC leadership emphasises a bottom line of c.6.5% growth and is concerned about unemployment and social stability given the increasing stress in the labour market, we think its preference (for now) will be for the necessary capacity reduction and deleveraging process to be gradual. As a result, China could see below-potential growth for longer,.
"We recently lowered our 2016 GDP growth forecast to 6%, under our base case of at least a couple more years of painful adjustment ahead given the high levels of industrial excess capacity and large housing inventories", estimates Barclays.
