China's new leaders have adopted a greater tolerance for a slowdown in the economy than their predecessors and are likely to allow quarterly growth to slip as far as 7 percent before triggering fresh stimulus to lift activity, sources say.
The government of President Xi Jinping and Premier Li Keqiang has flagged for some time that the rapid GDP growth of the past three decades needed to shift down a gear as the economy moves towards consumer-led expansion.
But it was not clear where Xi and Li would draw the line in the sand, leaving financial markets guessing over how the government would respond to successively weak economic data.
Government economists at top think tanks involved in policy discussions say that line is likely to be 7 percent, compared with their predecessors who implicitly observed a level of 7.5 percent to 8 percent.
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"The new leaders' tolerance of economic slowdown is definitely higher than their predecessors," said Zhang Yongjun, senior economist at China Centre for International Economic Exchanges (CCIEE), a well-connected think-tank in Beijing.
"They understand that China's potential growth rate has been falling. The minimum growth rate that they can tolerate has been shifted downward and it's likely to be 7 percent," he said.
That does not mean Xi and Li have abandoned the mandated annual growth target of 7.5 percent. If that appears to be under threat, they will act, the government economists say.
Economic growth slipped to 7.7 percent in the first quarter compared with a year earlier, down from a rate of 7.9 percent in the previous three-month period. Weak data in April and signs of sluggish factory activity in May have raised concerns the economy could slow further in the current quarter.
China is due to report May data in the next week.
Few analysts believe growth will slip below 7 percent in the current quarter and most agree the full-year target is achievable as the central bank already has relatively loose monetary policy.
But the likely line in the sand by Xi and Li gives a clearer indication to financial markets that a slowdown would have to be more dramatic before they endorsed fresh stimulus measures and it also shows the extent to which they are focusing on efforts to restructure the economy. Previously, many investors had assumed that the level of tolerance would be 7.5 percent.
China is undergoing a massive shift as Beijing tries to re-engineer the economy more towards domestic consumption and away from exports- and investment-led growth.
After three decades of double-digit expansion that saw China zoom into second place in the rankings of the world's biggest economies, growth slowed dramatically in 2012 to 7.8 percent - the slowest pace in 13 years.
"We should not blindly pursue GDP growth," Li said in November when he was vice premier. "The economy is likely to experience a modest-speed period as it's very difficult to maintain double-digit rates in the long run."
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The government economists said the previous leadership of Hu Jintao and Wen Jiabao, who handed over the reins in March, had implicitly observed a minimum level of growth at 7.5 percent to 8 percent. They triggered government stimulus by fast-tracking infrastructure projects when annual growth slipped to 7.6 percent and 7.4 percent in the second and third quarters of 2012, respecively.