China:It is Tough to Achieve over 6.5 Percent Growth over 2016-2020

China will face great difficulty in achieving economic growth above 6.5 percent over the 2016-2020 period due to slowing global demand and rising labor costs at home.

Li Wei， president of the State Councils Development Research Centre， made the above comments at a conference.

“In the last 30 years of reforms and opening up， Chinas gross domestic product has posted annual growth of around 10 percent. Against this， 6.5 percent is not high， but it will be very difficult to achieve this pace of growth，” he said.

Chinas premier says market solutions needed to solve overcapacity.

He said the main impeding factors were a likely global economic slowdown， rising labor costs that were eroding Chinas competitive advantage， and growing environmental concerns which meant that the country could not industrialize arable land at as rapid a pace as before.

President Xi Jinping has said that China must keep annual average growth at no less than 6.5 percent over the next five years to hit the countrys goal of doubling gross domestic product and per capita income by 2020 from 2010.

Solve Overcapacity Woes

Sorting out Chinas overcapacity problems has become a major objective for the countrys top leaders. Several government bodies have introduced policies aimed at neutralizing excess capacity within the steel， cement， aluminum， plate glass and shipbuilding industries.

The process for China to gradually eliminate excessive production capacity in over-supplied sectors may last till 2016， a Chinese macroeconomic analyst has warned.

Overcapacity problems intensified following over-investment in 2009， and it will be seven years from that point before the excessive production is eased， Chen Letian， chief macroeconomic analyst with Rising Securities， wrote in an article published on the China Securities Journal.

Had it not been the massive expansion in industrial capacity amid massive stimulus in 2009， Chinas current round of production capacity would likely be reduced to normal levels in 2013， Chen wrote.

Overcapacity has led Chinas several sectors， including the steel industry， to the edge of losses.

Overcapacity also troubles Chinas emerging solar and wind industries， with the solar sector seeing a capacity utiliza-tion rate of 60 percent and the wind turbine industrys rate at less than 70 percent.endprint

A capacity utilization of less than 70 percent is dangerous and could trigger vicious competition， Chen warned.

High profit expectation and widely support from local governments led to Chinas overcapacity problems.

Chen wrote in the article that China will face urgent need to cope with overcapacity in the coming years； otherwise， bankruptcy， debt and unemployment may cause a financial crisis.

He suggested that some of the excess capacity could be absorbed through mergers and reorganization， improving companies capacity for innovation and encouraging Chinese businesses to expand overseas.

China Export and Import Demand Dips

Manufacturing and export sectors are key drivers of growth in China.

The demand for Chinese exports fell in January as global economic uncertainty continued to hurt consumer confidence.

Latest government data showed Chinas new export order index fell to 46.9 from 48.6 in the previous month.

The imports index also dropped to 46.9 from 49.3 in December， 2015， showing that domestic demand was slowing.

The data comes amid concerns over the impact of a global slowdown on Chinas economy.

Analysts said that Chinese exporters were being hurt by falling demand in key markets such as the US and Europe due to the ongoing economic problems in those economies.

“The economic situation in Europe continues to remain grim. It seems like the eurozone will not be able to avoid a recession in 2012，” Stephen Joske of the Economist Intelligence Unit said.

“There is no doubt that Chinas exports will have a tough year ahead.”

China has relied on the success of its manufacturing and export sector to power economic growth in recent years.

Even though demand is slowing we dont see any major economic crisis building up.

But as growth abroad slows， China has been trying to boost demand for its products at home in an effort to rebalance its economy internally.

“The key thing really for the Chinese economy is domestic demand，” the Economist Intelligence Units Mr Joske said.

However， encouraging domestic demand has brought some challenges along with it.

Consumer prices in China rose sharply in the first half of last year. At the same time， there were fears about the formation of asset bubbles within the country.

As a result， authorities implemented measures to contain consumer price growth and cool down the nations property market. Analysts said these measures have started to take effect and may slow growth in short term.endprint

“Even though demand is slowing we dont see any major economic crisis building up，” Mr Joske added.

“We are likely to get one or two bad quarters， but growth for the whole year should be robust by global standards.”

The data showed that Chinas purchasing managers index rose to 50.5 from 50.3 in December， indicating a slight expansion in the manufacturing activity.

Weak China Inflation Stokes Fears over Slowing Demand

Chinas consumer price inflation fell to a five-month low in October， 2015， the government said， in another sign of weak demand in the worlds second-largest economy.

China is a key driver of global growth but expansion slowed to its lowest rate in nearly a quarter of a century in 2014 and has continued to weaken in 2015.

A year-on-year rise of 1.3 percent in the consumer price index （CPI） -- a main gauge of inflation -- released by the National Bureau of Statistics was the lowest since May last year and down sharply from 1.6 percent in September last year.

It was also well below market expectations of 1.5 percent based on a survey of analysts by Bloomberg News.

Moderate inflation can be a boon to consumption as it pushes buyers to act before prices go up， while falling prices encourage shoppers to delay purchases and companies to put off investment， both of which can hurt growth.

“Deflation risks still remain in the economy. We expect deflation pressure will continue to be there，” Claire Huang， China economist at Societe Generale in Hong Kong said.

The producer price index （PPI）， which measures the cost of goods at the factory gate， fell 5.9 percent year-on-year in October last year， matching the figures for September and August， which represented a six-year low.

Overcapacity in manufacturing has been a major drag on Chinas growth and analysts said the protracted declines in PPI boded ill for industrial prospects.

It was “still too early” for signs of a rebound in industrial activity， Bank of America Merrill Lynch economists said in a note.

Consumer inflation has been at or below 2.0 percent for all of 2015， while the drop in PPI -- a leading indicator for CPI -- was the 44th consecutive monthly fall.

China is facing economic turbulence as it tries to transition its economy from years of super-charged growth to a more modest pace it has dubbed the “new normal”.endprint

The troubles have sent waves of concern through stock markets around the world.

Growth hit a 24-year low of 7.3 percent in 2014 and has slowed further in 2015， slipping to 7.0 percent in each of the first two quarters.

In the July-September period last year the country logged its worst economic performance since the global financial crisis， with GDP rising just 6.9 percent.

Zhu Guangyao， a vice finance minister， said at a briefing that Chinas annual economic growth “will reach 6.5 percent”over the 2016-2020 period.

Both domestic and overseas demand have slackened， with official trade data at the weekend showing imports down nearly 19 percent in October last year， and exports falling almost seven percent.

Vice Foreign Minister Li Baodong told the same briefing that the world economic recovery was still “lacking momentum”.

“Asia-Pacific also faces challenges such as an unstable basis for growth， economic transition and divergent economic trends，” he said.endprint