This week China’s Premier, Li Keqiang, told journalists at the close of the country’s rubber-stamp legislature in Beijing that “it would be impossible for me” to say that China would fail to reach its growth target of 6.5-7% due to the impact of economic restructuring—which would be achieved, he stressed, without any of the nasty large-scale layoffs seen in the late 90’s under then-premier Zhu Rongji. That pledge was made all the more impressive by the other events of this week.
As if downgrading China’s debt rating from “stable” to “negative” last week wasn’t enough, Moody’s did the same to Hong Kong, citing risks to China’s economic stability and growing political links weighing on the Special Autonomous Region’s institutional strength. Financial Secretary John Tsang came out swinging in response, claiming Hong Kong was in a good position to take advantage of China’s economic transition.
But accomplishing that shift away from heavy industry will likely prove difficult if steel mills and coal mines react to their falling fortunes in the same way as China Hongqiao, the country’s largest aluminum producer. After posting a more than 30% drop in annual net profit, dragged down by a 10% decline in aluminum prices, the firm announced it was opting for a counterintuitive strategy of pumping out even more of the metal. This despite the fact that a nearly 40% rise in sales volume the previous year had failed to offset the commodity’s quickly crumbling value.
And the management at Hongqiao might do well to ask the folks at Longmay Mining Group how that worked out for them, as this week hundreds if not thousands of irate employees picketed the state-owned coal firm, demanding unpaid salaries and denouncing the provincial governor.
Indeed, uncertainty about China’s economic outlook was enough to stay the hand Janet Yellen, chair of the US Federal Reserve. After citing China’s slowing economy and volatile oil prices, the Fed disclosed on Thursday that it would hold off on further hikes to the benchmark US interest rate for at least a month.
With the passing of the latest five-year plan calling for annual average growth of 6.5% from 2016-2020 by the National People’s Congress, it would appear that Beijing is dead-set on maintaining an exhausting rate of economic expansion regardless of reality. But in fairness the premier’s comments didn’t rule out the possibility that China could end up missing the headline growth target—just that it would be impossible to admit.