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Earlier today, China published its official growth target; moving from a hard target of 6.5% to a range of 6-6.5%. It will be vital for China to accelerate market reforms and to reduce the dominance of the state, comments Jeremy Lawson, Aberdeen Standard Investments.
"The downward revision to the official growth target is just a confirmation of the fact that this time around they won't resort to a multitude of stimulus policies to conjure up growth. That's no bad thing. The country's state-led growth model clearly paid huge dividends over the last 30 years but it is now running out of steam", says Jeremy Lawson, Chief Economist at Aberdeen Standard Investments.
According to him, investors might be obsessed with the latest stimulus measures, or the tenor of the trade war. However, fact is that the reforms that President Trump is demanding matter much more for China than for the US. Accelerating market reforms and reducing the dominance of the state will be vital for China in order to complete its shift towards a more sustainable growth trajectory.
"To that end, it is the new foreign investment law due for approval at the Congress that we will be paying closest attention to. If China chooses to take steps to ban forced technology transfers, ease joint venture requirements, and reduce interference with foreign firms, it will be a nascent sign that policy is shifting in a more positive long-term direction. This week's Congress is not intended to address or solve all of the country's long-term challenges. That is a multi-year project. Nevertheless, the signals for future growth may finally be improving, states Jeremy Lawson.
