China’s modest growth target signals policy shift from world

China set a conservative economic growth target that signals more restrained monetary and fiscal policies this year, in contrast to other major nations still pumping in stimulus.

The government set a growth target of above 6 percent for the year, well below what economists forecast, and will narrow the budget deficit to 3.2 percent of gross domestic product, Premier Li Keqiang said Friday at the opening of the national People’s Congress (NPC). While the fiscal gap is lower than last year, it’s above the 3 percent expected by many analysts, signaling Beijing still sees a need for spending to support the recovery.

“a target of over 6 percent will enable all of us to devote full energy to promoting reform, innovation, and high-quality development,” said Li. “China will continue to face many development risks and challenges, but the economic fundamentals that will sustain long-term growth remain unchanged.”

after emerging from the pandemic as the only major economy to expand last year, Beijing is now shifting its focus to tackling imbalances made worse by last year’s stimulus -- such as dependence on investment in property and infrastructure funded by corporate debt. That contrasts with other major economies such as the US, “The government has set a more flexible economic growth target to leave room for structural reform and pandemic uncertainties,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities hong Kong. it’s almost certain that China will achieve that growth rate this year, which suggests authorities are shifting their focus to the quality of growth instead of speed, he added.

The government said in its report that spending will be weighted toward “projects which will help significantly improve the people’s wellbeing.” it listed programs such as renovation of old housing, better public services in smaller towns, raising the basic pension, and increasing child-care and assistance for the elderly. it also pledged to improve the health-care system by reforming public hospitals, supporting the development of private hospitals, and setting up a mechanism to cover outpatient medical bills.

This year’s meeting of the NPC, China’s main legislature, had added significance because of the release of a new five-year plan covering 2021-2025. a key focus of the plan is boosting spending and driving research into cuttingedge chips and artificial intelligence, laying out a technological blueprint to vie for global influence with the US.

The government also projected defense spending growth of 6.8 percent this year, the largest increase since 2019, amid tensions with the US and key neighbors.

Slow consumer recovery

“The foundation for achieving our country’s economic recovery needs to be further consolidated, impediments to consumer spending remain, and investment growth lacks sustainability,” Li said. “Our innovation capacity in key areas needs to be improved. Some local governments have serious budgetary deficits. in forestalling and defusing risks in the financial sector and other areas, we face formidable tasks.”

China’s V-shaped recovery alongside a recession in the US 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. however, there has been a build-up in debt and worries about asset bubbles alongside that recovery, fueling expectations that policy makers will withdraw the monetary and fiscal stimulus unleashed during the pandemic last year.

TPP

Li also announced that China may join an asia-pacific trade pact comprised of key US allies that former President Donald Trump exited.

in his work report to the NPC in Beijing, Li said China “will actively consider joining” the 11-nation agreement known as the Comprehensive and Progressive agreement for Trans-pacific Partnership. it includes nations that China has sparred with recently such as australia, Canada and Japan.

The premier added that China would accelerate free-trade negotiations with Japan and South Korea, both of which rely on the US for defense, and quickly implement an investment pact reached with the european Union in December.

“China stands ready to work with other countries to achieve mutual benefits on the basis of greater mutual opening,” he said.

The annual report made no reference to the phase-one trade deal with the US, only saying China “will promote the growth of mutually beneficial China-us business relations on the basis of equality and mutual respect.”

Trump withdrew the US from talks on the trade pact, then known as the TPP, shortly after he took office in January 2021. President Joe Biden’s administration is now seeking to rally what officials are calling “techno-democracies” to stand up to China and other “techno-autocracies.”

China became the only major country to grow last year, eking out a multidecade low 2.3 percent expansion after shutting down most of its economy to fight the coronavirus. The world’s second-largest economy grew by 6.5 percent over a year earlier in the final quarter of 2020, while the United States, europe and Japan struggled with renewed virus outbreaks.

Li vowed to “work faster to enhance our strategic scientific and technological capability” seen by communist leaders as a path to prosperity, strategic autonomy and global influence. Those plans are threatened by tension with Washington over technology and security that prompted then-president Trump to slap sanctions on China’s fledgling telecom and other tech industries.

The party will “regard scientific and technological self-reliance as a strategic support for national development,” Li said.

Li promised to pursue “green development” following Xi’s pledge last year to ensure China’s carbon emissions peak by 2030 and to achieve carbon neutrality by 2060.

That will require sharp increases in clean and renewable energy in an economy that gets 60 percent of its power from coal and is the world’s biggest source of climate-changing industrial pollution.

“We will expedite the transition of China’s growth model to one of green development and promote both highquality economic growth and highstandard environmental protection,” Li said. he promised to reduce carbon emissions and energy use per unit of economic output.

The premier said Beijing will “improve the relevant systems” in hong Kong “to safeguard national security” but gave no details of possible changes in the territory, where the ruling party is tightening control following prodemocracy protests. The party used last year’s legislative session to impose a national security law on hong Kong under which dozens of activists have been arrested.

“We will resolutely guard against and deter external forces’ interference in the affairs of hong Kong,” the premier said.

a spokesman for the legislature, Zhang Yesui, said Thursday it will consider unspecified changes to support “patriots ruling hong Kong,” fueling fears Beijing plans to shut opposition voices out of the city’s political process.

Speculation has focused on the possibility of reassigning votes in the 1,200-member committee that selects hong Kong leader to cut out the small number of elected local district counselors.

The ruling party earlier announced it achieved its goal of doubling economic output from 2010 levels by last year, which required annual growth of 7 percent. Xi has talked about doubling output again by 2035, which would imply annual growth of about 5 percent, still among the highest for any major economy.

The ruling party’s desire for the prosperity produced by free-market competition clashes with its insistence on playing a dominant role in the economy and reducing dependence on other countries.

Li said Beijing will promote “domestic circulation,” a reference to official pressure on industries to use more Chinese-supplied components and technology and rely less on inputs from the United States, europe and asian suppliers, even when that increases costs.

That emphasis on self-reliance has fueled fears the world might split into separate US Chinese and other industrial spheres with incompatible technologies, less competition and higher costs.

The goal of “decoupling them from foreign technology and supply chains” is “more likely to harm productivity than help it” and will make hitting the 2035 target harder, said Mark Williams of Capital economics in a report this week.