China's economy will slow, but perhaps not as planned

Subject

The economic outlook for China.

Significance

Premier Li Keqiang, addressing the World Economic Forum in Davos on January 21, told a global audience that China's economy does not face a hard landing, arguing that structural reforms and "mass entrepreneurship and innovation" will maintain China's "medium to high-speed" growth. However, addressing the State Council just before the release of the latest quarterly economic figures on January 20, Li had already admitted that the government's work had become more difficult as a result of "downward pressure" on the economy.

Impacts

• Target GDP growth for 2015 may be lowered to 7%, and even this may be optimistic.
• Large-scale fiscal stimulus is unlikely.
• China's depressed demand for raw materials will hurt commodity exporters, Russia, Australia, Brazil and Indonesia foremost.
• This year is likely to see further cuts in interest rates and the reserve requirement ratio.