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Local GDP growth slows

2014-05-29 11:07 Global Times Web Editor: Qin Dexing

GDP growth in 12 out of 31 Chinese provincial-level regions fell behind the national increase of 7.4 percent in the first quarter, with Northeast China's Heilongjiang Province gaining the least, at 4.1 percent.

In the first quarter, only GDP increase of 9.6 percent in East China's Anhui Province outperformed its 2014 annual target by 0.1 percentage point, while economic growth in seven regions missed the full-year goal by more than 3 percentage points.

The data was released as China is in the process of shifting its economy to rely more on domestic consumption instead of exports. Local governments have also been asked to focus less on speeding up GDP growth.

The central authority said in a statement released in December that GDP growth should not be the sole criterion to evaluate local officials' performance. Other factors, such as cutting overcapacity and protecting the environment should be considered as well.

Tang Jianwei, a senior macroeconomic analyst at the Bank of Communications, told the Global Times Wednesday that this statement has partly contributed to the lowered local government GDP growth.

"Blindly pursuing high GDP growth is not sustainable," Tang said. "The priority for local officials should now be building a favorable economic environment for businesses and households."

Tian Yun, a research fellow with the China Society of Macroeconomics under the National Development and Reform Commission, told the Global Times that "it is a good thing for GDP growth to slow, as long as the country's distorted economic structure gets corrected."

"As China becomes more developed, the employment rate and the increase in household income are more important than GDP growth," Tian said.

China's local authorities often use money borrowed from the shadow banking system through government-backed special vehicles, to heavily invest in infrastructure construction so as to boost GDP.

But as GDP soars, local government debt also skyrockets. This prompted the Ministry of Finance to give approval for 10 provincial-level regions and cities, including Beijing, Shanghai and Shenzhen, to directly sell government bonds on their own credit, in an attempt to construct a more transparent borrowing system.

Tang said the ministry's move will further curtail local government GDP growth, as they can no longer hide loans from their balance sheets when issuing bonds. "It will put tight restrictions on local governments, which will be cautious and selective when funding projects," he said. "The era of extremely high GDP surges has gone."

More than half of the 19 regions with first-quarter GDP growth higher than the national level are in central and western China. That is because less-developed regions are going through high-speed urbanization and attract more central government benefits, Li Bo, a Shanghai-based chief investment consultant at GF Securities, told the Global Times.

"China's central and western regions will see fast growth, albeit slower [than previously], in the next few years, since they still have a long way to go to catch up with provinces in the east," Li said.

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