China Record Credit Crunch May Pull Down GDP

China’s biggest squeeze on credit in at least a decade is increasing the chance that Li Keqiang will be the first premier to miss an annual growth target since the Asian financial crisis in 1998.

Goldman Sachs Group Inc. and China International Capital Corp. yesterday joined banks from Barclays Plc to HSBC Holdings Plc in paring their growth projections this year to 7.4 percent, below the government’s 7.5 percent goal. The cuts followed a tightening in central bank liquidity that yesterday left the overnight repurchase rate more than double the year’s average.

“The current leadership is trying to build its reputation in a different way than the previous administration, which felt that its target was holy and had to be met regardless of the circumstances,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, who previously worked for the World Bank.

The danger is that putting the growth goal aside undermines public confidence in China’s economic policy making that’s already been shaken by limited communication on the government’s objectives behind the cash squeeze. The central bank yesterday contributed to the biggest drop in Chinese stocks in almost four years by releasing a week-old statement saying liquidity was “reasonable.”

The government set the 7.5 percent target at a March conference where Li became premier. Seventeen of 56 respondents to a Bloomberg News survey last week gave estimates of 7.5 percent or less for gains in gross domestic product this year.

Bloomberg

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