Pin the tail on China's growth targetJuly 12, 2013: 5:04 AM ET
Most readers are probably familiar with a game called "pin the tail on the donkey" -- a staple of birthday parties for children under the age of 10.
For the uninitiated, the game involves a blindfold, a disorienting series of spins and an attempt to pin "the tail" on a paper "donkey." Nobody ever seems to get the pin in quite the right spot. But it can be quite entertaining to see the contestants stumble around blindly.
Economists and reporters were playing their own version of this game Friday after a series of comments from a high-ranking Chinese official cast doubt over the country's official growth target and the highly anticipated GDP report that will be released Monday morning.
Chinese finance minister Lou Jiwei was the source of this confusion. Speaking at a press conference in Washington, Lou told reporters on Thursday that China was shooting for economic growth of 7% this year.
Lou's comments are newsworthy because a 7% expansion would be among the worst rates in more than 20 years, and would carry major implications for economies around the world. The comments are extra puzzling because China set an official growth target of 7.5% just a few months ago.
"Please don't forget that our expected GDP growth rate this year is 7%," Lou said, according to Bloomberg. "There won't be much of a problem to meet our expectations this year."
GDP is easily the most-watched of Chinese economic statistics. It provides the most accurate and complete portrait of the world's second largest economy, and the government puts a huge emphasis on it.
So was Lou speaking out of turn? Or did his comments constitute an actual policy shift? Or was he making an attempt to play down growth expectations ahead of the report's release on Monday?
Nobody really knows. Here's Nomura economist Zhiwei Zhang:
"Bloomberg has reported comments made by Minister of Finance Lou Jiwei at a post-Strategic Economic Dialogue press conference yesterday, that "he's confident in achieving a 7% growth rate this year." This is lower than the government's official growth target of 7.5%.
The report has sparked a few investor enquiries this morning as to whether the official growth target for 2013 has been lowered to 7%. While we cannot verify if that is what Minister Lou meant, it seems unlikely to us as the 7.5% was approved just four months ago at the National People's Congress (NPC). Furthermore, Premier Li Keqiang has referenced the country's economic targets on several occasions in recent months with no mention of any revision of targets.
A revision of the official growth target may require [National People's Congress] approval, so we regard the quote with caution and wait for any clarification from the government."
Lou wasn't done stirring the pot. He also weighed in on another policy question that has sparked much speculation in recent days.
Most economists expect that China's economy expanded by 7.5% in the second quarter. In the past, a performance like this would have prompted officials to implement stimulus measures, whether at the central bank or through government spending.
But China's current leadership is attempting to execute a series of structural economic changes that will help the country move to a more sustainable growth model. They have indicated a willingness to pursue these changes even if the cost is a reduction in GDP growth.
So how slow is too slow for Beijing? That's what everyone wants to know.
"We don't think 6.5% or 7% will be a big problem," Lou said, according to Bloomberg. "It's difficult to give you a limit. But from the data we have, we have the confidence."