SNAPSHOT2 min read

China’s new growth target: what does it mean for markets?

David Rees explains why China’s economic growth is likely to be significantly ahead of target this year.



David Rees
Senior Emerging Markets Economist

The return of the Chinese government’s official growth target, which was set at “above 6%”, has raised more questions than it has answered; it is far below our forecast for GDP to expand by 9% this year.

Growth of about 6% would imply an abrupt tightening of policy this year, which there is so far little sign of. We suspect that growth will be quite a bit stronger and that the authorities are trying to anchor medium-term expectations.

Either way, financial markets have rarely focused on the official growth figures due to concerns about their accuracy, and have instead tended to react more to cyclical indicators such as the credit impulse and monetary aggregates. These remain supportive in the near term but, with signs that they are starting to moderate, some support is likely to fade later this year.

How to interpret the new economic growth target?

The government’s work report on the opening day of the National People’s Congress on Friday brought back the official target for GDP growth, which was set at “above 6%” for 2021. 

Whereas the growth target has historically appeared to be too ambitious, it is quite the opposite this time. The Reuters consensus forecast is 8.4% and our own expectation is even higher at 9%, as reiterated in our recent update.

A quick back-of-the-envelope calculation using the official, seasonally-adjusted, GDP data shows that annual GDP growth of over 6% can be achieved this year with zero sequential quarter-on-quarter growth. As the chart below shows, powerful base effects alone would be enough to raise GDP in annual terms.


Source: NBS, Refinitiv Datastream, 5 March 2021

The upshot is that either the government is planning to aggressively tighten policy and sink the economy, or growth will be much stronger and the authorities are trying to anchor longer term expectations and deter local governments and individuals from getting carried away.

It is hard to believe that the government would actively choose to bring economic growth crashing down, particularly as the Communist Party celebrates its centenary this year. And there is certainly not much evidence of an aggressive tightening of policy in the details of the economic plan.

If anything, targets to reduce the fiscal deficit to only 3.2% of GDP and cut overall government bond issuance by just 2% of GDP (to 6.5% from 8.4% last year) are less austere than had been generally expected.

So unless monetary policy is to be tightened substantially, which has not yet been the case, or the authorities will heavily massage the data, GDP growth is likely to be significantly stronger than 6% this year.

As a result, for the time being we stick to our forecast for growth of around 9%.

What are the implications for financial markets?

What matters for the performance of financial markets and economies in the rest of the world is not China’s official GDP growth but instead changes in the underlying business cycle. In this regard, the credit impulse and growth in real M1 have typically been far more useful indicators.

For example, earnings revisions for the MSCI Emerging Markets Index and the performance of the overall market are closely correlated with growth in China’s real M1 money supply. This lagged relationship suggests that recent upward momentum in earning revisions has further to run.


Source: Refinitiv Datastream, 5 March 2021

Similarly, the credit impulse has historically been a good guide to the performance of exports in China’s key trading partners.


Source: Refinitiv Datastream, 5 March 2021

These leading indicators appear to have reached a peak and are likely to trend down in the months ahead as policy is tightened gradually.

This forms the basis of our view that the cycle in China’s economy will reach an inflexion point in mid-year and GDP growth will slow to around 5.7% in 2022.

Important Information:

This document is issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders). It is intended solely for wholesale clients (as defined under the Corporations Act 2001 (Cth)) and is not suitable for distribution to retail clients. This document does not contain and should not be taken as containing any financial product advice or financial product recommendations. This document does not take into consideration any recipient’s objectives, financial situation or needs. Before making any decision relating to a Schroders fund, you should obtain and read a copy of the product disclosure statement available at or other relevant disclosure document for that fund and consider the appropriateness of the fund to your objectives, financial situation and needs. You should also refer to the target market determination for the fund at All investments carry risk, and the repayment of capital and performance in any of the funds named in this document are not guaranteed by Schroders or any company in the Schroders Group. The material contained in this document is not intended to provide, and should not be relied on for accounting, legal or tax advice. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this document. To the maximum extent permitted by law, Schroders, every company in the Schroders plc group, and their respective directors, officers, employees, consultants and agents exclude all liability (however arising) for any direct or indirect loss or damage that may be suffered by the recipient or any other person in connection with this document. Opinions, estimates and projections contained in this document reflect the opinions of the authors as at the date of this document and are subject to change without notice. “Forward-looking” information, such as forecasts or projections, are not guarantees of any future performance and there is no assurance that any forecast or projection will be realised. Past performance is not a reliable indicator of future performance. All references to securities, sectors, regions and/or countries are made for illustrative purposes only and are not to be construed as recommendations to buy, sell or hold. Telephone calls and other electronic communications with Schroders representatives may be recorded.


David Rees
Senior Emerging Markets Economist


Emerging Markets
Economic views
Asia ex Japan
Our sales team is available to discuss with you any investment opportunities.
Follow us

This website is owned and operated by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473).  Your access to this website is subject to the Terms of Use found by clicking the ‘Important Information’ link below.  By using this website, you agree to be subject to these Terms of Use.