China makes 7% (and not 7.5%) the official growth target. Sort of.

07/23/2013 7:49 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Line in the sand or slow retreat?

China will not accept economic growth below 7%, Premier Li Keqiang told a recent meeting of economists, according to a story on July 21 by the official Xinhua News Agency. 7% is the bottom line, the story reported Li saying, and the nation can’t allow growth below that.

Stocks rallied overnight on the statement with Hong Kong’s Hang Seng Index climbing 2.33% and the Shanghai Composite Index ahead 2.76%.

The assumption among investors seems to be that Li has promised that the government will intervene to support growth if it threatens to dip below 7%.

I’ve got to question that assumption. Li’s 7% target marks a retreat from what had been the official target of 7.5% growth for 2013. And as such it represents a retreat from the former growth target.

So is Li’s statement a promise to support economic growth of the sort that market remembers from the good old days of growth above all things or is it a measured retreat that says the government is willing to sacrifice some growth to achieve its other goals?

The market’s rally on this lower growth target testifies to its extreme nervousness about how fast China’s economy is slowing and where the bottom might be. A promise to support 7% growth isn’t good news if you were expecting 7.5% growth. A rally on a promise of 7% growth suggests that no one saw 7.5% as a real target any more.

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