China set a conservative economic growth target of above 6% for the year, well below what economists forecast, and outlined ongoing fiscal support to keep the recovery going.
The government will narrow the budget deficit to 3.2% of gross domestic product this year, Premier Li Keqiang said Friday at the opening of the National People’s Congress. While that’s lower than last year’s 3.6% of GDP, it’s above the 3% expected by many analysts, signaling Beijing still sees a need for expanded fiscal policy to support growth this year.
“In 2021, China will continue to face many development risks and challenges, but the economic fundamentals that will sustain long-term growth remain unchanged,” said Li. “A target of over 6% will enable all of us to devote full energy to promoting reform, innovation, and high-quality development.”
China’s economy was the only major one in the world to expand last year, aided by the central bank’s injections of liquidity to support businesses, extra fiscal spending on infrastructure and the quick control of coronavirus outbreaks domestically. Economists predict the economy will expand 8.4% this year, partly due to the low base from 2020.
“The tone is very conservative,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group in Hong Kong. The fiscal targets suggest “2021 is a year of tapering.”
China’s CSI 300 Index of stocks fell as much as 2%, poised to enter a technical correction, before paring. Traders blamed the initial losses on a global rout overnight, rather than any negative headlines out of the NPC. China’s government bonds were little changed, while the onshore yuan weakened less than 0.1%.
| NPC Targets | 2020 | 2021 |
|---|---|---|
| GDP growth | None | over 6% |
| CPI | around 3.5% | around 3% |
| Fiscal deficit (% of GDP) | over 3.6% | around 3.2% |
| Special local government bond quota | 3.75 trillion yuan | 3.65 trillion yuan |
| Anti-virus special sovereign bond quota | 1 trillion yuan | none |
| New urban job creation | over 9 million | over 11 million |
| Surveyed jobless rate | around 6% | around 5.5% |
The quota for local government bond sales is higher than the 3.5 trillion yuan forecast by analysts as the government continues to pursue proactive fiscal policy. On monetary policy, the government reiterated that it would be prudent, and would keep the yuan basically stable at a reasonable level.
China’s V-shaped recovery alongside a recession in the U.S. And elsewhere puts it on course to become the world’s largest economy by 2028, two years earlier than expected, according to projections by several banks including Nomura Holdings Inc.
Alongside that recovery has been a build-up in debt and worries about asset bubbles, fueling expectations that policy makers will withdraw the monetary and fiscal stimulus unleashed during the pandemic last year.
This year’s meeting of the NPC, China’s main legislature, has added significance because of the release of a new five-year plan covering 2021-2025. Some of the key goals already outlined include strengthening consumer demand, investing in hi-tech industries, and addressing long-term challenges such as an aging population.