China reduces its growth forecast for 2017 to 6.5%, a 25-year low

Chinese banks had disbursed a record $1.83 trillion of loans in 2016.

The Dollar Business Bureau 

China on Sunday cut its growth target to 6.5% this year - a 25-year low - as the country drives through some painful reforms in order to address its debt concerns and seeks to control risks in the financial sector. 

China is aiming to expand the economy by about 6.5% in 2017, said Premier Li Keqiang, while speaking at the opening of yearly meeting of the Parliament.

The world’s second largest economy had targeted growth of 6.5-7% last year but finally achieved 6.7%, which was the slowest in the past 26 years. 

A lending spree and raised government spending have led to worries among the top leadership of the country about increased debt levels and the overheating housing sector. 

This year’s target for broad money supply growth was reduced to about 12% from 13%, whereas the budget deficit target was kept unmoved by the government at 3% of (GDP) gross domestic product. 

The government will continue implementing proactive fiscal measures and keep a prudent monetary policy, said Li, while adding that government would push on with supplying-side reforms and take measures to cut risks and ensure safety in thefinancial sector. 

Li further said that China would have high level of vigilance to check risks from non-performing assets (NPAs), shadow banking, debt defaults and internet finance. 

It will gradually push further with de-leveraging, majorly in non-financial corporate segment, he added. 

China’s ministry of finance pledged in the work report issued on Sunday to clamp down risk on the local government debts. 

The country’s debt-to-GDP ratio increased to 277% at the end of last year against 254% in the previous year, with a rising share of new credits being utilised for the payment of debt servicing costs, as per a latest UBS note. 

Chinese banks had disbursed a record 12.65 trillion yuan (about $1.83 trillion) of loans in 2016, and latest data showed that new loans in yuan reached 2.03 trillion yuan, the second highest ever in January. 

The Dollar Business Bureau - Mar 06, 2017 12:00 IST