China signals 'new lower' lower growth target | Fin24

China signals 'new lower' lower growth target

Mar 05 2015 11:38

Beijing - China announced an economic growth target for 2015 of around 7% on Thursday and said it would boost government spending, signalling that the lowest rate of expansion for a quarter of a century is the "new normal" for the world's No 2 economy.

Speaking at the opening of the country's annual parliamentary meeting, Premier Li Keqiang vowed to fight corruption and pollution, and stressed the need for more painful reforms to put the economy on a more sustainable footing after three decades of breakneck growth.

"The downward pressure on China's economy is intensifying," Li told around 3 000 delegates gathered at the Great Hall of the People to the west of Tiananmen Square in the heart of Beijing.

"Deep-seated problems in the country's economic development are becoming more obvious. The difficulties we are facing this year could be bigger than last year. The new year is a crucial year for deepening all-round reforms."

Outlining the government's policy priorities for 2015 in a Chinese equivalent of the US State of the Union address, Li said those priorities included pushing ahead with reforms of the giant state-owned enterprises that still bestride the economy, and moves to liberalise the banking system and financial markets.

"In order to defuse problems and risks, avoid falling into the 'middle income trap', and achieve modernization, China must rely on development, and development requires an appropriate growth rate," said Li.

"At the same time, China's economic development has entered a 'new normal'."

The annual full meeting of the largely rubber-stamp National People's Congress is a colourful event, drawing delegates from all over China, some in traditional ethnic costumes, to the vast hall, a monument to 1950s Communist architecture.

Its role is largely to endorse policy decisions already agreed by the Party hierarchy and provide top leaders with a platform to lay out their priorities for the coming year.

Fiscal boost

In the short-term, China's top policymakers are grappling to sustain an economy weighed down by a cooling property market, high debt levels and excess factory capacity.

Over the longer run, they are seeking to restructure it to boost consumption at the expense of exports and investment.

Underscoring the challenges faced in striking that balance, the People's Bank of China cut interest rates at the weekend for the second time in three months.

Adding a fiscal boost to the central bank's monetary support, Beijing plans to lift government spending to 17.15trn yuan ($2.74trn) in 2015, an increase of 10.6% on 2014.

That will mean raising the budget deficit to 1.62trn yuan, or around 2.3% of growth domestic product, compared with 2.1% last year, with some of the extra money being spent on railway and water projects and modernising agriculture.

China's economy grew 7.4% last year, roughly in line with the government's growth target of around 7.5% and robust by global standards, but still the slowest in 24 years.

With deflationary pressures mounting in China - annual consumer inflation fell to a five-year low of 0.8% in January - Li said the government would also lower its 2015 inflation target to around 3 percent from 3.5% in 2014.

Market reforms, social stability

A key plank of China's reform agenda is overhauling its industrial sector by tackling overcapacity in polluting heavy industries and moving manufacturing up the global value chain.

"Manufacturing is traditionally a strong area for Chinese industry," said Li.

"We will implement the 'Made in China 2025' strategy, seek innovation-driven development, apply smart technology, strengthen foundations, pursue green development and redouble our efforts to upgrade China from a manufacturer of quantity to one of quality."

Li promised a greater role for private business in the economy, which he said would be further opened up by halving the number of industries in which foreign investment is restricted.

With Communist Party leaders ever mindful of social stability, Li said China aimed to create more than 10 million new jobs in 2015 and would ensure the jobless rate does not exceed 4.5%. China targeted a registered urban unemployment rate of 4.6% last year.

The fight against pollution and corruption, consistent themes for Premier Li and President Xi Jinping, have contributed to the slowing economy as Beijing has clamped down on dirty industries, while fear of being caught in the anti-graft net has discouraged local officials from pressing on with reforms.

But in the longer term, the Communist Party leadership regards tackling the twin side-effects of China's decades-long dash for growth as vital to maintaining its grip on power.

"Our tough stance on corruption is here to stay," said Li. "Our tolerance for corruption is zero, and anyone guilty of corruption will be dealt with seriously."

china  |  world economy


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