LDN - Business

China still on track to hit growth target despite winter smog war: state planner

[October 21, 2017] By Kevin Yao and Meng Meng

BEIJING (Reuters) - China's economy is on track to meet its official growth target for 2017, the head of the state planning agency said on Saturday, despite a punishing war on pollution which is expected to slash industrial output over the winter months.

China has forced 28 cities in smog-prone northern regions to reduce emissions of airborne particles known as PM2.5 by at least 15 percent from October to March 2017, with some cities expected to cut steel production by as much as 50 percent.

But officials with the National Development and Reform Commission (NDRC) said the world's second-largest economy will remain on track.

"We expect to achieve the full-year growth target of about 6.5 percent," He Lifeng, chairman of the National Development and Reform Commission (NDRC), told a briefing on the sidelines of China's Communist Party Congress.

Most economists believe China's actual growth should easily beat the target. The economy grew 6.8 percent in the third quarter of the year, and 6.9 percent in the first half. Last year's growth rate of 6.7 percent was a 26-year low.

China's economy has surprised global markets and investors with robust growth so far this year, driven by a renaissance in its long-ailing "smokestack" industries such as steel and stronger demand from Europe and the United States.

But economists with Societe Generale said in a recent note that the winter output cuts could slash industrial production growth by 0.6-0.8 percentage points and GDP growth by 0.2-0.25 percentage points in the next six months.

Industrial growth slowed to 6.3 percent in the third quarter, from 6.6 percent in the previous period, data showed last week, with the services sector taking up much of the slack.

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An employee uses a laptop next to a car body at an assembly line at a Ford manufacturing plant in Chongqing municipality April 20, 2012. REUTERS/Stringer

Prices of commodities like steel, copper and iron ore have turned wildly volatile in China and in global markets recent weeks on fears of possible winter shortages.

China's steel output dropped 3.7 percent in September from a record high the previous month as mills reduced production in line with Beijing's campaign, and analysts predict further declines as winter curbs set in.

However, Zhang Yong, vice-chairman of the NDRC, told reporters that the direct impact was likely to be limited.

"Measures to fight pollution don't have a big impact on economic growth," he said. "Measures to treat pollution have a positive impact on economic development in the long term."

The government has been pushing a restructuring program designed to "upgrade" its heavy industrial economy, cut pollution and tackle profit-sapping capacity gluts in sectors like steel and coal.

China says it has cut annual crude steel capacity by as much as 110 million tonnes over the last five years, with coal capacity slashed by as much as 400 million tonnes, though some analysts say much of the outdated, inefficient plants are merely being replaced with leaner, cleaner ones.

Ning Jizhe, vice head of the NDRC and also head of China's National Bureau of Statistics, said the country would continue to crack down on steel overcapacity, prevent obsolete plants from restarting and promote more mergers in the sector.

(Reporting by Kevin Yao and Meng Meng; Writing by David Stanway; Editing by Kim Coghill and Tom Hogue)

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