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Economy

Stability, not growth, emerges as Xi's No. 1 goal

The Chinese leader is willing to risk slowdown for a better economic foundation

BEIJING Undeterred by the growth-hampering effects of efforts to rein in a property bubble and protect the environment, Chinese President Xi Jinping seems more committed than ever to improving the "quality" of his country's economy.

Real gross domestic product grew 6.8% on the year in the July-September quarter, down 0.1 point from the April-June rate. The first slowdown in growth in six quarters was due in part to higher interest rates. The People's Bank of China has guided rates higher since the beginning of the year to cool the overheating housing market, which in turn has affected mortgage and other interest rates. Regional governments have also restricted property sales and purchases.

Real estate sales by floor space grew just 10% in the first nine months of 2017 compared with a year earlier, slowing from 16% growth in the January-June half. Sales actually shrank on the year in September, particularly in large cities. In Beijing, contracts for existing-home sales fell in September to roughly a third of the March level.

"Prices are falling, and buyers are waiting to see what happens," a property broker in the capital said.

Growth in private-sector investment also slowed to 6% in January-September, weighing down overall investment. Higher rates constrain corporate profitability.

HOBBLED BY REGULATIONS Environmental regulations are also putting a damper on the economy. In the past, regional governments often turned a blind eye to corporate violators because they were more interested in bolstering growth and tax revenue. But a national crackdown lasting through early this year affected over 10,000 negligent regional officials and led to much stricter enforcement of the rules.

"Hebei Province, among others, follows rules to a T and urges factories to suspend or cease operations if air or water readings are even a little past acceptable standards," a diplomatic source said. Output of products with a high environmental impact, such as cement and coke, slowed in January-September.

Still, China is on track to meet the government's growth target of about 6.5% for the full year and could even top the 6.7% posted in 2016. The authorities worked hard to stabilize the economy ahead of the twice-a-decade Communist Party congress that began Oct. 18.

A key component of this growth is infrastructure investment, which jumped 20% in January-September and is believed to account for 22% of total investment. Beijing also implemented major cuts to corporate taxes in 2016 and 2017. The International Monetary Fund expects the country's fiscal deficit, broadly defined, to total 12.6% of GDP in 2017, topping 12% for the second straight year.

Meanwhile, retail sales of consumer goods have been growing by double digits, and were up 10% on the year in January-September. Online sales jumped by over 30%.

Xi told the party congress he will prioritize quality and efficiency in the economy, suggesting that efforts to cool the property market and protect the environment will continue unless signs of serious economic trouble crop up. If that is indeed the case, a further slowdown may be in store for China in the months ahead.

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