The Chinese government yesterday abandoned its decades-long practice of setting an annual target for economic growth amid the uncertainty of the COVID-19 pandemic and said that it would continue to increase stimulus.
Speaking at the Chinese National People’s Congress in Beijing, Chinese Premier Li Keqiang’s (李克強) delivered an annual policy address that instead laid out a renewed focus on maintaining employment and investment.
Against a backdrop of escalating tensions with the US, Li said that Beijing remains committed to implementing the terms of their “phase one” trade deal.
With more than US$500 billion in infrastructure bonds to be issued this year and more monetary easing on the horizon, China is trying to cement a fragile domestic recovery without indulging in the kind of debt blowouts seen in the US and Europe. The world’s largest exporter is therefore still reliant on other countries reining in the pandemic and a reboot of global trade.
“We have not set a specific target for economic growth this year,” said Li, speaking in the Great Hall of the People. “This is because our country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the COVID-19 pandemic and the world economic and trade environment.”
The shifting away from a hard target for output growth breaks with decades of Chinese Communist Party (CCP) planning habits and is an admission of the deep rupture that the disease has caused.
Economists surveyed by Bloomberg forecast an expansion of just 1.8 percent this year, the worst performance since the 1970s.
At the same time, Li gave a precise figure for the targeted budget deficit, widening it to more than 3.6 percent of GDP.
Including the issuance of special bonds, that brings a broader measure of the deficit to more than 8 percent, Bloomberg Economics said.
“Setting a target in such an uncertain economic environment would have been risky. Abandoning the decades-long tradition relieves the government of the straitjacket the annual target placed on economic policy. The challenge now will be to effectively guide expectations in the absence of the GDP target,” Bloomberg Economics chief Asia economist Chang Shu (舒暢) and analyst David Qu (曲天石) said.
Li said that the government is setting a target for urban job creation of more than 9 million jobs, less than last year’s target of about 11 million, and a target for the urban surveyed unemployment rate of about 6 percent, more than last year’s goal.
The government’s official measures do not capture the full extent of unemployment caused by the pandemic, which has hit manufacturing and services hard. With jobs and income growth vital for the CCP’s political legitimacy, stabilizing employment has become Li’s first priority.
“We will make every effort to stabilize and expand employment,” Li said. “We will strive to keep existing jobs secure, work actively to create new ones and help unemployed people find work.”
Reflecting on controversy over the “phase one” trade deal with the US signed earlier this year before the pandemic broke out, Li said that China would work with the US to implement the agreement.
The budget deficit target was widened to more than 3.6 percent of GDP, implying a significantly larger shortfall than last year’s target of 2.8 percent. Greater spending on efforts to restart the economy and control the spread of the novel coronavirus would be funded by the issuance of 1 trillion yuan (US$140.2 billion) in sovereign debt.
To help finance infrastructure investment, local governments are to issue 3.75 trillion yuan in local special bonds this year. That is an increase from last year’s quota of 2.15 trillion.
Economists had forecast an issuance of up to 4 trillion yuan.
“It is crucial that we take steps to ensure that enterprises can secure loans more easily and promote steady reduction of interest rates,” the government said in an English-language report.
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