Analysts: Weak start to year a test for Beijing

China could miss its official growth target for the first time in 16 years, a snap poll of economists by AFP shows after surprisingly weak data for January and February. Industrial output, a key measure of production at factories, workshops and mines in the world's second-largest economy, rose just 8.6 percent in the first two months of 2014, the slowest pace in five years, government figures showed Thursday. Retail sales, an indicator of consumer spending, increased at the lowest rate since February 2011, while growth in fixed asset investment, a gauge of government spending on infrastructure, came in at a surprisingly low 17.9 percent during the period, according to the data. In a survey of 10 economists by AFP on Friday, the median forecast for 2014 growth was 7.4 percent, with some saying the weak start to the year had led them to cut their annual predictions. At the just-concluded National People's Congress (NPC), Premier Li Keqiang set this year's growth target at "around 7.5 percent", lower than last year's actual expansion of 7.7 percent -- which was unchanged from 2012 and the worst since 7.6 percent in 1999. China is a key driver of the world economy and the last time its actual GDP growth came in below the government target was in 1998, at the height of the Asian financial crisis. "The disappointing economic data in January-February will be a test of the government's tolerance level, as this pace of deceleration has rarely been seen before," Shen Jianguang, a Hong Kong-based economist with Mizuho Securities, said in a research note. He cut his projection for 2014 growth from 7.5 percent to 7.3 percent. Bank of America Merrill Lynch analysts also lowered their prediction from 7.6 percent to 7.2 percent for the full year due to the "significantly weaker than expected" data in the first two months. Goldman Sachs, meanwhile, said that if economic growth falls under 7.5 percent in the first quarter, there will be "significant risks of not hitting the annual target". Chinese shares closed down Friday on worries over an economic slowdown, with the benchmark Shanghai Composite Index dropping 0.73 percent. - Key downside risks - China's top leaders have said they are ready to accept slower expansion as they seek to transform the economy's growth model away from an over-reliance on often wasteful investment, and instead make private demand the driver of future development. After the close of the NPC, China's Communist Party-controlled legislature, on Thursday Premier Li sought to downplay the importance of the target. "We have a level of flexibility by setting the target at around 7.5 percent," he said. He did not specify the lowest rate the government could accept, only saying it must ensure sufficient job creation. "We think the government will not let growth slide below the 7.0 percent mark," Wang Tao, a UBS economist in Hong Kong, said in a report. Key downside risks ahead this year include uncertainties in export recovery, credit volatilities related to China's multi-trillion-dollar shadow banking sector -- heightened by the country's first-ever default on a domestic corporate bond last week -- and a "more pronounced" property slowdown, she said. Yao Wei, an analyst with Societe Generale, said in a research note: "New leaders are now facing a critical test: whether they can stabilise the economy, without significantly compromising the progress of lowering debt risks." The government has avoided introducing major stimulus measures since Li took office in March last year, and the ruling party leadership promised in November to let the market play the "decisive" role in resource allocation. But that vow could make it more difficult for the government to intervene in the economy, for example with infrastructure investment, as such policies "may conceptually contradict the goal", Goldman Sachs economist Song Yu said in a report. "It does imply more constraints on what and how much the government can do compared with the past," Song wrote.