Barclays lowers China's 2014 growth to 7.1 percent

Barclays Emerging Market Research has lowered its economic growth prediction for China to 7.1 percent from 7.4 percent.

“Despite an improved near-term outlook, we had been highlighting downside risks to our 2014 growth forecast. We do not expect the recent acceleration in domestic demand to be sustained, given our belief that policy support aims to stabilize rather than boost growth,” Barclays researcher Jian Chang said in an email to The Jakarta Post.

“We note that fundamental challenges facing the Chinese economy have not been addressed, namely: industrial sector overcapacity, financial and fiscal risks (high corporate and local government debt, intertwined with risks associated with a growing shadow banking sector), a latent property bubble, and lower potential growth,” Jian added.

Jian also said that Barclays believed the Chinese government would cut its 2014 growth target to 7 percent from 7.5 percent during the National People’s Congress meeting in March next year.

“This is based on our judgment of a slower potential growth rate to 7 percent, the need to rebalance the economy, and the government’s tolerance level given the risks to employment, industrial profits, and financial stability,” Jian said.

Lowering the growth target will also help guide market expectations and contain local government development enthusiasm, according to Jian.

“We note that any strong pickup in infrastructure or a rebound in property investment now would mean a further worsening of imbalances that will weigh on growth later. In fact, we expect the government to shift focus to “adjusting structure and promoting reforms” in 2014 as growth stabilizes in H2 2013,” Jian said.