Why China is poised to lower its 2014 GDP target to 7%

Industrial production growth may not be too impressive.

Nomura believes that China's strong IP growth print is not sustainable and that the government will lower its 2014

growth target to 7%.

Here's more from Nomura:

Growth of industrial production (IP) rose sharply by 10.4% y-o-y in August from 9.7% in July, but was mostly led by heavy industries.

Production growth of steel, power, iron and coke accelerated by 5.6 percentage points on average from July to August, much faster than others components. Moreover, industrial output from SOEs contributed the most to the recovery, growing by 9.5% in August from 8.1% in July.

This recovery has put the economy back on track to achieve the 7.5% growth target for 2013, but it compounds some of the structural problems facing the economy.

Heavy industry faces a severe overcapacity problem and its growth contrasts fully against the principles recently espoused by both President Xi and Premier Li – that a lower rate of GDP growth can be tolerated to ensure better quality growth in the future.

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