Let's presume the magic number 7.5% isn't really that magic. Communist China controls its economy more so than less Communist countries. If it wants 7.5%, it will get something pretty close to that. And a leadership out to prove its ability, as most governments try to do at the start of their terms, will do visible, concrete things to realize their top-priority goals.
"As for the immediate outlook, we are already seeing signs that policymakers are shifting towards a tighter stance, on fears that credit growth has been excessive," says Mark Williams, chief Asia economist with Capital Economics in London. "The People's Bank has signaled that it will shift to a tighter monetary stance during the year ahead."
Going back to the premier's comments, I'd vote for modest a modest, symbolic interest rate hike at some point this year. The government still wants to pull down property prices. Higher rates could also indirectly cap everyday inflation, the leading conversation topic at Beijing restaurants whenever the bill comes.
Property price controls would slow momentum of the country's top real estate stars China Vanke (000002.SZ) and Vantone Real Estate Group (VTNI).But the hikes wouldn't be ridiculous, as China still wants a relatively loose monetary environment while it tries to eradicate poverty, increase consumer spending and give its top domestic firms more muscle in other countries. Any new monetary policy should then steer away from domestic MNCs such as China Merchants Holdings (0144.HK) or China Ocean Shipping (COSCZ). Foreign firms keen on expanding in China might find their JV partners paying more interest on loans, an obvious extra cost of doing business that could muck up the bottom line. But since the government wants consumer spending to lead the economy, it won't touch companies that sell affordable stuff to the masses. Good on the likes of Starbucks (SBUX), with plans to take its 570 China stores to 1,500 by 2015, and Pizza Hut (YUM), which was on track to open 150 stores around the country last year. "Three factors should be grabbing our attention in China right now: policy action around property prices, a loose monetary environment and increasing inflationary pressures," forecasts James Berkeley, director of the British customer management consultancy Berkeley Burke International. He adds a caution: "It is too early to find hard evidence from data releases at this time of the year, to state which of those policy tools will be favored to achieve the 7.5% GDP target." Expect evidence to emerge in April with first-quarter economic indicators. Expect China to act, and expect markets to react. At the time of publication the author had no position in any of the stocks mentioned. Ralph Jennings is on LinkedIn. This article was written by an independent contributor, separate from TheStreet's regular news coverage.