Mar 02, 2019 12:31 AM

Slowing Economy to Be Center Stage as Annual Legislature Gets Set to Meet

Photo: VCG
Photo: VCG

China may set a lower, flexible economic growth target, raise its tolerance for fiscal deficit, and promise more tax cuts in the country’s equivalent of a “State of the Union Address” to be delivered by Premier Li Keqiang on Tuesday, analysts said.

They widely expect this year’s goal for growth in gross domestic product (GDP) to be set at a range of 6.0%-6.5% in the Report on the Work of the Government, which is to be released at the opening of the annual session of the National People’s Congress, China’s top legislature. The government last adopted a flexible GDP growth target in 2016, setting it at a range of 6.5%-7%.

The NPC is one of the “Two Sessions” that occur each March, bringing together the nation’s top politicians, business and social leaders in Beijing to discuss the latest issues. The other session of the Chinese People’s Political Consultative Conference (CPPCC) brings together key leaders from the non-political realm to advise the NPC on new legislation, and begins meeting this weekend.

The GDP growth projection for this year, shared by institutions including Morgan Stanley, UBS, HSBC and China International Capital Corp. Ltd. (CICC), is lower than the actual rate of 6.6% last year as well as the target of “around 6.5%” that the government had set for 2018.

Stabilizing GDP growth will likely become a more pressing task for the government this year than in 2018 as the impact of a trade war with the U.S. on exports becomes evident. Investment is also forecast to remain sluggish due to a cooling property market and tightened regulatory oversight over unofficial local government borrowing, which has weighed on infrastructure spending, a key economic driver.

Observers have pinned hopes on fiscal stimulus measures such as tax cuts to bolster economic growth this year. That would be in line with the central bank’s slew of earlier measures to encourage lending, including five cuts to the amount of cash banks must set aside as reserves. The central bank has also dampened speculation on aggressive monetary easing, such as a reduction in benchmark interest rates, and vowed to continue to reduce debt levels at state-owned enterprises and local governments.

“Recent policy moves have sent a clear and consistent signal that countercyclical easing has moved into full swing to stabilize economic growth and the labor market, without compromising too much on financial stability,” Morgan Stanley economists said in a note on Thursday.

“We thus expect the upcoming National People's Congress to adopt the same pro-growth easing stance seen since the December (Central Economic Work Conference), and announce more easing measures, particularly from the fiscal side,” they wrote, referring to a meeting of top Chinese officials, chaired by President Xi Jinping, convened earlier to set 2019 policy for the world’s second-largest economy.

The government is expected to raise the target for the general budget deficit-to-GDP ratio up from last year’s 2.6%, although it is likely to stay under 3%, to accommodate planned tax breaks, subsidies and other types of fiscal incentives, analysts said.

But the broader deficit will possibly grow by a much larger margin, they said. Described by many analysts as augmented fiscal deficit, the imbalance covers not only the general budget deficit, but also infrastructure-related debt increases at local government financing vehicles, special-purpose local government bonds that are repaid with returns from the specific projects they invest in, and other quasi-fiscal spending increases.

UBS analysts foresee the augmented fiscal deficit picking up by 1.5 to 1.8 percentage points this year, compared with a contraction last year.

Meanwhile, they predict more than 1.5 trillion yuan ($223.7 billion) in tax cuts from new policies this year, mainly corporate value-added tax breaks, and measures carried over from 2018, such as the reduction in personal income tax.

Tax and fee cuts amounted to around 1.3 trillion yuan last year, Assistant Finance Minister Xu Hongcai said in January.

Contact reporter Fran Wang (

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