Chinese Local Governments Cut 2015 Growth Targets, Some Face Cash Crunch

By Nikkei Asian Review

This year’s economic growth targets for local governments in China are being cut as nearly all failed to reach their 2014 goals in the face of a sharp slowdown.

Local governments are reviewing their targets in line with President Xi Jinping’s emphasis on sustainable growth, but the move is expected to widen financial disparities among regions. “We are not afraid of a moderate drop in growth,” Yang Xiong, mayor of Shanghai, said at a press conference Jan. 29.

The Shanghai municipal government has declined to set an official growth target for 2015, becoming the first major city or region to abandon the practice. Aside from Shanghai, 27 of the 31 provinces, directly controlled municipalities and autonomous regions in China have announced their 2015 targets since the start of the year. With the exception of Tibet, which is forecasting a leveling off of its expansion, all have set their sights lower than in 2014.

New Reality

While 16 local governments set double-digit growth targets in 2014, this year only five have done so. Most of these are in inland areas, such as Chongqing City and Guizhou Province.

China’s economic slowdown last year looks set to continue. None of the 28 local governments exceeded their targets in 2014. The growth slump was particularly severe in Shanxi Province, which relies heavily on coal mining. With coal prices falling amid weak demand, the province’s economy grew 4.9% in 2014, far short of its 9% target.

The downfall of Ling Jihua, former head of the Communist Party’s United Front Work Department late last year as part of Xi’s anti-corruption drive also slowed economic activity in the province, which was Ling’s power base.

Many areas with excess manufacturing capacity, such as Liaoning and Hebei provinces, also saw relatively weak growth, at around 6%.

The Chinese leadership has responded by emphasizing stable growth and accepting a moderate slowdown. But along with slower growth comes weaker tax revenues. These rose at a combined 8.6% rate in 2014 at the central and local government levels. That is the slowest rate of growth in 23 years. With China’s economic slowdown putting financial pressure on local governments, some may find themselves strapped for cash.

Courtesy of Nikkei Asian Review, © 2015 Nikkei Inc.