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China Predicts Slower Economic Growth, Shifts to Supply-Side Reform

China recently set its economic growth target at between 6.5% and 7 percent this year, and though many countries would be glad to realize that level of growth, it would be China’s lowest in more than 30 years.

And there are no signs of improvement—at least for the next five years.

China released the draft outline of its 13th Five-Year Plan on Saturday, setting the annual economic growth target at an average of 6.5% from now until 2020, Xinhua reported.

That growth, however, has been considered the minimum China would need to meet its goal of doubling 2010 GDP and per capita income by 2020.

GDP in the country is expected to exceed 92.7 trillion yuan ($14.2 trillion) in 2020, compared to last year’s 67.7 trillion yuan ($10.4 trillion).

Factory conditions in China also point to a greater slowdown, as the manufacturing purchasing manager’s index fell to 49 in February, down from 49.4 in January and marking the seventh straight month of factory activity contraction.

There’s a host of reforms China has slated for the next five years, including promoting mass innovation, reforming state-owned enterprises and abolishing outmoded rules targeting the private sector.

The country also wants to encourage overseas firms to invest more in advanced manufacturing, hi-tech offerings, energy saving and environmental protection, according to Xinhua. Manufacturing upgrades will be made, pollution control will get more attention and plans for poverty reduction are also in place.

China said it set its growth target at 6.5 to 7 percent for this year taking into account the need for structural reform and job creation. Last year, the country’s economy grew 6.9%, and signs of tough times ahead are still apparent.

“A comprehensive analysis of all factors shows that China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle,” the country’s premier Li Keqiang said in a report, according to Xinhua.

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National People’s Congress (NPC) deputy Fang Weifeng said the slowdown is “inevitable” but that foundation for growth in the long-term looks solid.

China has been trying to move from an export-led economy to a more consumer society, and though the effort has created short-term setbacks, it’s expected to generate sustainable long-term growth.

Over the last three decades, China’s exponential growth was thanks to exports, capital investment and consumption—things considered to be on the demand side. Now the country wants to use tax cuts, entrepreneurship and innovation to stimulate business and increase supply of goods and services.

The easing of China’s one-child policy is expected to add high-quality labor to the market in the future, further boosting the supply side.

Separate from what China will have to add to realize this supply-side reform, it will also need to cut overcapacity, de-stock, de-leverage and reduce costs, as China outlined in a recent government work report.

“Analysts believe there will be further measures carried out nationwide following the annual sessions of the NPC and the CPPCC National Committee,” Xinhua reported. “With different focuses, together they will help combat an ongoing economic slow-down in the country.”