The World Bank suggested on Wednesday that China should lower its economic growth target to 7% next year and indicated the adjustment would not hurt its labor market. It also warned China against carrying too “ambitious” 2014 economic growth target of 7.5% into 2015. Such a move could detract from the government’s reform plans.
For the past 30 years China has been delivering double-digit economic expansion. That economic miracle lifted millions of Chinese from poverty. On the other hand the rapid growth polluted the nation’s air, land and waterways. Now it’s time to change slightly the development direction. The country wants to retool its economy to generate better-quality growth at slower pace.
“Our policy message is the focus should be on reforms rather than meeting specific growth targets,” Karlis Smits, a senior economist at the World Bank office in Beijing, told reporters at a media briefing.
Communist Party leaders who are wary of social unrest have said that having a healthy job market is a top policy priority.
Domestic demand has been on the slide this year due to the property market slowdown and growth decrease. Even a series of stimulus related measures rolled out by the central bank did not help much.
China’s economy grew at its slowest pace since the global financial crisis in Q3. Analysts also expect it will miss its official growth target for the first time in 15 years.
Analysts expect the economy to expand by 7.4% in 2014, the slowest in 24 years, just below the 7.5 percent target.
The International Monetary Fund, said in July that China should set a growth target of 6.5 – 6.7% for 2015. China should also refrain from stimulus measures as long as possible unless the economy threatens to slow sharply from that level.
Beijing is expected to announce its 2015 growth target level in March 2015.
China is supposed to redirect its economy by stimulating its domestic demand as the current levels of manufacturing wages are uncompetitive against some of the Emerging Asia countries like Indonesia, Vietnam or Bangladesh.
The ETF heavily underpeformed global emerging markets between March and May this year. The ratio of CHIQ relative to EEM lost around 15% during that period. Since then it has been trading sideways.
As a reminder, a rising price ratio means the numerator/CHIQ is outpeforming (up more / down less) the denominator/EEM.
If China will undertake the right steps to boost the domestic demand, the CHIQ could be a perfect solution to gain exposure to the theme.
Source: Reuters, StockCharts
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