Slow growth step necessary

China's acceptance of a slower rate of growth rattled markets on Monday, but it creates space for structural reforms and will help manage expectations, says an article on reuters.com. Excerpts:

Oil, copper and equities all fell after Premier Wen Jiabao, in his annual work report to the National People's Congress, penciled in 7.5 percent growth for 2012. That would be the slowest pace of expansion since 1990 and well down on last year's 9.2 percent growth rate.

Ditching the 8 percent reference rate for growth set for the previous eight years is more about managing expectations than reflecting a serious lack of confidence in the economy's prospects, said Steve Tsang, director of the China Policy Institute at Britain's Nottingham University.

Indeed, China's five-year plan for 2011-15, released a year ago, was based on an even lower growth rate of 7 percent, shifting down from the annual pace of almost 10 percent enjoyed in the first 30 years of China's growth.

"What the authorities are trying to do is to move from strong to sustainable rates of growth. No one is quite clear where sustainable is, but clearly it's one that's slower than we've seen in the recent past," said Gerard Lyons, chief economist at Standard Chartered Bank in London.

"The 7.5 percent target is a signal meant to lower expectations and create space for structural reforms," Jeremy Stevens, an economist in Beijing for South Africa's Standard Bank said. "Markets may start off unimpressed, but these are steps in the right direction."

Good for China and the world

After Beijing cut the country's growth target to an eight-year low, there have been suggestions that China is in retreat because of the US' sluggish economic recovery and dwindling European demand, but this sentiment reflects a short-term view, says an article on scmp.com. Excerpts:

Premier Wen Jiabao told the annual session of the National People's Congress that this year's growth target had been cut to 7.5 per cent in a bid to refocus the economy away from an unsustainable growth model.

The government's priorities this year will be to boost consumer demand through reducing the income gap and reduce reliance on external demand and capital investment

What is good for China in the long term will also be good for the world economy.

A lower target comes with a pledge to boost domestic consumption, a reform long sought by economic partners and economists concerned about economic imbalances. Stronger consumption in such a huge market can only benefit the global economy.

A reduced growth target that is sustainable is therefore not a bad thing. To maintain its rise, China needs to undertake drastic economic reforms.

Historically China's growth rates have been powered by exports and government spending, now, amid the fragile US economic recovery and with Europe casting a long shadow over future demand, there is the need for another engine of economic growth.

The necessary reforms could put the country on a healthier, more sustainable growth path.