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Property sales have slowed in China as regional governments clamp down on real estate transactions.   © Reuters
Economy

Stability, rather than growth, emerges as Xi's No. 1 goal

Chinese leader willing to risk slowdown for better economic foundation

BEIJING -- Although China's efforts to prevent a property bubble and protect the environment have cast a shadow on economic growth, President Xi Jinping seems more committed than ever to improving the "quality" of the country's economy.

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

Real estate sales grew just 10% by floor space 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 last month to roughly a third 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.

Slowed by regulation

Environmental regulations are putting a damper on the economy as well. 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 early this year affecting over 10,000 negligent regional officials has led to much stricter enforcement of the rules.

"Hebei Province, among others, follows rules to a tee 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, also 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 have worked hard to stabilize the economy ahead of the twice-a-decade Communist Party congress that began Wednesday.

A key component of this growth is infrastructure investment, which jumped 20% in January-September and now accounts 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-digit clips, and were up 10% on the year in January-September. Online sales jumped by over 30%.

At the party congress Wednesday, Xi said he will prioritize the quality and efficiency of the Chinese economy, suggesting he will continue working to prevent a property bubble and environmental degradation unless there are signs of serious economic trouble. China could face a further slowdown in growth following the congress.

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