Caixin
Mar 05, 2017 10:29 AM
ECONOMY

China 2017 GDP Growth Target at 25-Year Low

(Beijing) – China on Sunday set an economic growth target for 2017 that represents a 25-year low, as it accommodates uncertainties including rising global protectionism and challenges facing its unbalanced real estate and commodities markets.

Premier Li Keqiang set out the target as he vowed to continue the nation’s painful reform process that includes capacity reductions in oversupplied sectors like steel and coal, and closure of efficient state-run companies.

Economic growth is projected to grow “around 6.5%, or higher if possible in practice” in 2017, Li said in his Report on the Work of the Government delivered at the opening of the National People’s Congress (NPC), the annual meeting of China’s legislature.

That marked the least ambitious goal in 25 years, since a 6.0% target for gross national product (GNP) growth was set in 1992, according to the official Xinhua news agency.

Last year, the government set its GDP growth projection at a more rigid range of 6.5%-7%. The economy ultimately grew at 6.7% for the year.

This year’s target is “realistic” and will “help steer” and stabilize expectations and allow room for structural reforms, Li said. But he also warned of “complicated and graver” situations this year.

“World economic growth remains sluggish, and both the deglobalization trend and protectionism are growing,” he said in the report. “There are many uncertainties about the direction of the major economies’ policies and their spillover effects, and the factors that could cause instability and uncertainty are visibly increasing.”

Concerns are growing over strained trade relations between China and its major trade partners including the U.S. under China skeptic President Donald Trump and the European Union, where a slew of political reshuffles are to take place later this year.

Trump promised during his campaign to label China a currency manipulator on his first day of office and threatened to slap a 45% tariff on imports from the country. In a Twitter posting dated Feb. 3 — two weeks after his Jan. 20 inauguration — Trump wrote that the U.S. should charge its trading partners “the same” taxes or tariffs “as they charge us.”

Yuan Liberalization

Li promised that this year Beijing will continue to press ahead with the liberalization of the yuan’s exchange rate, which lost around 6.5% in 2016 against the dollar as the greenback strengthened, fueling a wave of capital outflows.

“The RMB exchange rate will be further liberalized, and the currency’s stable position in the global monetary system will be maintained,” he said in the report.

The International Monetary Fund in October last year added the yuan as its fifth Special Drawing Rights currency, hailed by Beijing as a landmark victory in its efforts to let its currency play a greater international role.

Domestically, China is facing many difficulties carrying out much-needed reforms this year, Li said.

“China is at a crucial and challenging stage in its own development endeavors, and there are many salient challenges and problems in the economy,” he said.

“To ensure overall economic and social stability we must not allow the red line to be crossed concerning financial security, people’s well-being, or environmental protection.”

Beijing is expected to move aggressively this year to shut state-run “zombie” companies that are effectively dead but allowed to stay open to preserve jobs, in its effort to cut excess manufacturing capacity, and address financial risks such as bubbles in the property market and elevated local government debt.

Reducing Capacity

Li said China aims to reduce steel capacity by around 50 million tons and close down at least 150 million tons of coal production capacity in 2017. It will also suspend or postpone construction on or eliminate no less than 50 million kilowatts of coal-fired power generation facilities, to tackle an electricity supply glut and “make room for clean energy”.

In 2016, China shed more than 65 million and 290 million tons of steel and coal-mining capacity, respectively, Li said previously.

Li promised the government will continue to provide financial assistance, such as rewards and subsidies, to workers laid off due to the drive to cut overcapacity, or help them find new jobs.

Meanwhile, more than 11 million new urban jobs are forecast to be created this year, 1 million more than last year’s target, Li said in the report.

Analysts have anticipated the government would increase the fiscal deficit this year to spend more on infrastructure construction to support economic expansion. That could offset declining contributions from the property sector, which has been slowing since tightening measures were introduced starting in September last year to rein in surging home prices.

The fiscal deficit is predicted to rise by 200 billion yuan ($29 billion) to 2.38 trillion yuan this year, but the deficit-to-GDP ratio will remain unchanged from last year’s 3%, Li said in the report.

He added that authorities will execute a “prudent and neutral” monetary policy this year to maintain "basic stability in liquidity" and "appropriate" interest rate levels, with M2 money supply and aggregate financing forecast to grow by around 12%, down from the 2016 target of an increase of around 13%.

Last year, actual M2 money supply climbed by 11.3% and aggregate financing was up 12.8%.

While vowing to continue to crack down on speculation in the housing market, Li said the government will take targeted policies to cut excessive real estate inventory in third- and fourth-tier cities, and support residents who buy homes for personal use.

Contact reporter Fran Wang (fangwang@caixin.com)

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