China Deterioration Raises Risk of Wen Missing Target
China’s economy is showing mounting signs of deterioration from manufacturers to banks, raising the risk that outgoing Premier Wen Jiabao will miss his growth target for the first time since taking office in 2003.
Manufacturing slowed further in August, surveys of purchasing managers showed Sept. 1 and today, with one gauge at the lowest level since March 2009. The readings added to evidence of weakness after a surfeit of unsold goods left near- record rubber stocks at China’s main hub for the commodity and financial strains saw a 27 percent jump in overdue loans at the five biggest banks in the first half.
Enlarge image
Manufacturing unexpectedly contracted for the first time in nine months in August as orders shrank, a government survey showed Sept. 1. Photographer: Nelson Ching/Bloomberg
China hasn’t failed to exceed the Communist Party’s annual growth target since the throes of the Asian financial crisis in 1998, and a miss of this year’s 7.5 percent goal may complicate a once-a-decade leadership handover. The outgoing generation of policy makers has held back on stimulus this year as it seeks to rein in a property-market boom and avoid a jump in bad debt.
“If there is no further policy response, it’s very likely that GDP growth will fall below the target and this administration will likely hand over a hard-landing economy to the next one,” said Liu Li-Gang, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. The central bank should “revert to cutting banks’ reserve requirements more aggressively to revitalize the economy. If we have a cut soon we could have good fourth-quarter growth.”
Financial Strains