On Monday, March 5, China announced that its GDP target for the full year 2012 is 7.5%, lower than the government target of 8% in 2011. This number is also lower than many financial analysts’ estimates and the IMF’s latest estimate of 8.2% in February. At the same time, the government also announced that its consumer price index (CPI) growth estimate is 4% — the same as the 2011 target.
This slight decrease is in line with our recent observations of the overall China economy. Some key reasons for the reduced estimate include:
State-owned enterprises (SOEs) have slowed down. In the banking sector, growth from private banks in 2012 is expected to be at least 10% to 20% higher than the “Big Four” banks.
Government investment in infrastructure has been revised. For instance, many new high-speed rail projects were put on hold after the Wenzhou train collision in July 2011.
Increasing labor costs in China have hurt exports. Foxconn, the largest employer in the manufacturing sector in China, has again increased workers’ base salaries by 16% to 25% beginning in February 2012.