China turns fiscal screws while targeting GDP growth
CHINA stepped up its push to curb financial risk, cutting its budget deficit target for the first time since 2012 and setting a growth goal of around 6.5 per cent that omitted last year’s aim for a faster pace if possible.
The deficit target – released last Monday as Premier Li Keqiang delivered his annual report to the National People’s Congress in Beijin – was lowered to 2.6 per cent of gross domestic product from three per cent in the past two years.
The 6.5 percent goal is consistent with President Xi Jinping’s promise to deliver a “moderately prosperous” society by 2020.
Policy makers dropped a target for M2 money supply growth, saying it’s expected to expand at similar pace to last year.
Authorities reiterated prior language saying prudent monetary policy will remain neutral this year and that they’ll ensure liquidity at a reasonable and stable level.
Xi has ratcheted up his drive to curb debt risk, pollution and poverty at a time when the world’s second-largest economy is on a long-term growth slowdown. His efforts to rein in spending contrast with an historic expansion of US borrowing under Donald Trump during a period of economic expansion.
The 2018 targets “suggest slower growth and a fiscal drag,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. “This makes sense for China in the context of the new focus on financial derisking, poverty alleviation and environmental clean-up, but is less good news at the margin for those economies that have high export exposure to China.”
Growth handily surpassed 2017’s target with a 6.9 per cent expansion that was the first acceleration since 2010. Economists forecast a moderation to 6.5 per cent this year amid the
The recent pace of fiscal stimulus is unsustainable and unnecessary... A curtailment in the official fiscal and growth target makes sense. Stephen Jen, chief executive officer of Eurizon SLJ Capital Ltd. in London
ongoing deleveraging drive and trade tensions with the Trump administration and a further deceleration to 6.2 per cent in 2019.
“We will improve the transmission mechanism of monetary policy, make better use of differentiated reserve ratio and credit policies, and encourage more funds to flow toward small and micro businesses, agriculture, rural areas, and rural residents, and poor areas, and to better serve the real economy,” Li said in his report.
Spending to curb pollution will rise 19 per cent to 40.5 billion as authorities strive to make greater progress on one of their key objectives, Li said.
Authorities aim to cut sulfur dioxide and nitrogen oxide emissions by three per cent and keep reducing smog in key areas. Days with heavy air pollution in key cities have fallen 50 per cent over the past five years, according to the work report.
The lower fiscal budget deficit ratio goal should be seen in the context of the government’s awareness of the risk to systemic stability amid the deleveraging drive, said Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong.
“The work report this year is focused throughout on risk management.”