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

Tuesday, January 27, 2015

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.
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