Shanghai/Beijing: China’s President Xi Jinping said officials shouldn’t be judged solely on their record in boosting gross domestic product (GDP), the latest signal that policymakers are prepared to tolerate slower economic expansion.
The Communist Party should instead place more importance on achievements in improving people’s livelihood, social development and environmental quality when evaluating the performance of officials, the Xinhua News Agency reported Saturday, citing Xi at a meeting on personnel management on the eve of the 92nd anniversary of the party’s founding.
Xi’s comments follow remarks he made last month that China won’t sacrifice the environment to ensure short-term growth, and take place as the world’s second-largest economy undergoes its worst cash crunch in at least a decade as the government seeks to wring speculative lending out of the banking system.
“Xi is further legitimizing the case for slower growth,” said Andy Mantel, chief executive officer of Pacific Sun Advisors, an asset manager in Hong Kong that invests in Chinese stocks. “It is important to let local government officials know there is less importance of non-stop economic growth. There will be less pressure for local government officials to pump up their economic growth forecasts.”
“China needs growth of about 7% to double per capita GDP by 2020 from the level in 2010,” Prime Minister Li Keqiang said 27 May in Berlin after meeting with German Chancellor Angela Merkel during his first trip abroad as premier. That’s down from an average pace of 10.5% a year over the past decade, with growth driven by surging credit, government investment, and exports.
The credit crunch has increased chances that the government will miss its 7.5% annual target for economic growth this year, according to Goldman Sachs Group Inc. “Xi’s comments reinforce our view that there is a 30% chance growth may slump below 7% in the third or fourth quarter,” said Zhang Zhiwei, Nomura Holdings Inc.’s chief China economist in Hong Kong.
China’s banking regulator, in his first public comments since the country’s worst cash crunch in at least a decade, said on Saturday the operations of its lenders won’t be disrupted because they’ve built up sufficient cash reserves.
“Banks had about 1.5 trillion yuan ($244.4 billion) of cash reserves as of 28 June that could be used for payment and settlement needs, more than double what is usually required,” Shang Fulin, chairman of the China Banking Regulatory Commission, said in a speech in Shanghai.
“The tight liquidity condition on the interbank market has been easing in the last few days,” Shang said at the annual Lujiazui financial conference. “This type of situation won’t affect the banking sector’s smooth operations.”
“The cash crunch on the interbank market exposes deficiencies in commercial banks’ liquidity management and their business structures,” Shang said. “The next phase of reform in the banking sector will focus on supporting the real economy and risk prevention,” he said.
The one-day repurchase rate touched a record 13.91% on 20 June before tumbling on signs targeted injections of funds were being used to ease the cash crunch.
“The slowing pace of economic growth in China remains within a reasonable range and the economy is stable,” People’s Bank of China governor Zhou Xiaochuan told the same forum on 28 June in his first comments since the cash crunch. Zhou also sought to soothe concerns of a further deceleration of growth, saying he’s fully confident in China’s economic prospects and financial system.
A recent review by the National Audit Office indicated that total local government direct and guaranteed debt may have risen 13% to 12.1 trillion yuan by the end of 2012 from the end of 2010, according to Moody’s Investors Service, citing its own calculations based on data in the auditor’s report that showed a 13% increase in the debts of a sample of 36 local authorities.
At the work meeting on personnel, Xi said that the Communist Party’s organization departments should place integrity before capability when promoting officials, and urged that disciplinary violations and corruption be punished during official selection procedures, according to Xinhua.
“Cadres should be true believers of Marxism, exercise their power carefully and resist corruption,” Xi said according to Xinhua.
“Xi’s speech includes a forward-looking recognition that obsessive emphasis on economic growth targets is obsolete and must now be balanced against vital environmental and social concerns,” said William Overholt, a senior research fellow at Harvard University’s John F. Kennedy School of Government in Cambridge, Massachusetts. BLOOMBERG