China plans to set a lower GDP growth tar­get of up to 6.5%

Gulf Times Business - - BUSINESS -

China plans to set a lower eco­nomic growth tar­get of 6-6.5% in 2019 com­pared with last year’s tar­get of “around” 6.5%, pol­icy sources told Reuters, as Bei­jing gears up to cope with higher US tar­iffs and weak­en­ing domestic de­mand.

The pro­posed tar­get, to be un­veiled at the an­nual par­lia­men­tary ses­sion in March, was en­dorsed by top lead­ers at the an­nual closed­door Cen­tral Eco­nomic Work Con­fer­ence in mid-De­cem­ber, ac­cord­ing to four sources with knowl­edge of the meet­ing’s out­come.

Data later this month is ex­pected to show the Chi­nese econ­omy grew around 6.6% in 2018 – the weak­est since 1990.

An­a­lysts are fore­cast­ing a fur­ther loss of mo­men­tum this year be­fore pol­icy sup­port steps be­gin to kick in.

“It’s very difficult for growth to ex­ceed 6.5% (this year), and there could be trou­ble if growth dips be­low 6%,” said one source who re­quested anonymity due to the sen­si­tiv­ity of the mat­ter.

As the world’s se­cond-largest econ­omy loses steam, China’s top lead­ers are closely watch­ing em­ploy­ment lev­els as fac­to­ries could be forced to shed work­ers amid a trade war with the United States, de­spite a more re­silient ser­vices sec­tor, pol­icy in­sid­ers said.

Growth of about 6.2% is needed in the next two years to meet the rul­ing Com­mu­nist Party’s long­stand­ing goal of dou­bling gross domestic prod­uct and in­comes in the decade to 2020, and to turn China into a “mod­estly pros­per­ous” na­tion.

“Con­sid­er­ing em­ploy­ment, in­come and sta­bil­ity, we need growth of at least 6% this year,” said one of the sources.

Adopt­ing a range as a tar­get would give pol­i­cy­mak­ers room to ma­noeu­vre amid un­cer­tain­ties caused by a tit-for-tat tar­iff war with the United Sates, as the two sides strive for a pos­si­ble deal to set­tle their dif­fer­ences be­fore March.

The govern­ment plans to main­tain a 3% con­sumer inflation tar­get for 2019 de­spite a re­cent soft­en­ing in price rises, leav­ing some space for the govern­ment to stim­u­late weaker con­sump­tion.

Data this week showed China’s con­sumer inflation eased to 1.9% in De­cem­ber from 2.2% in Novem­ber, be­low the govern­ment’s full-year tar­get.

The State Coun­cil In­for­ma­tion Of­fice did not im­me­di­ately re­spond to a Reuters re­quest for com­ment.

Chi­nese lead­ers have turned more progrowth since the De­cem­ber meet­ing, soft­en­ing a drive to rein in fi­nan­cial and debt risks, but they have ruled out “flood-like” stim­u­lus.

“The pres­sure on the econ­omy is quite big, and over­all pol­icy fo­cus is sta­bil­ity this year and even next year,” said one of the sources.

The cen­tral bank is likely to pump out more cash by fur­ther low­er­ing banks’ reserve re­quire­ments, fol­low­ing a broad-based cut this month, while try­ing to fun­nel more credit to small and pri­vate firms – vi­tal for growth and jobs, pol­icy sources said.

Pol­i­cy­mak­ers re­main re­luc­tant to cut bench­mark in­ter­est rates de­spite eas­ing pres­sure on the yuan, fear­ing any moves could spur cap­i­tal out­flows as China’s short-term bond yields have fallen be­low those of the United States, they said.

The govern­ment is ex­pected to step up fis­cal stim­u­lus this year with steeper tax cuts to help cor­po­rates and an in­crease in spend­ing on in­fra­struc­ture projects, the sources said.

The an­nual budget deficit could rise from last year’s 2.6% of gross domestic prod­uct, but is likely to be kept be­low 3%, the sources said with­out giv­ing spe­cific fig­ures.

Lo­cal gov­ern­ments could be al­lowed to is­sue up to 2tn yuan worth of special bonds in 2019, up from 1.35tn yuan last year, they said.

On tax cuts, the fo­cus will be on pos­si­bly low­er­ing val­ued-added tax (VAT), which ranges from 6% for the ser­vices sec­tor and 16% for man­u­fac­tur­ers.

Such taxes ac­count for more than a third of to­tal govern­ment rev­enues.

Pol­i­cy­mak­ers are un­likely to loosen con­trols on the prop­erty mar­ket across the coun­try, but may give pro­vin­cial and city gov­ern­ments more lee­way in tweak­ing po­lices to keep lo­cal mar­kets steady, the sources said.

Buses wait to be ex­ported in Lianyun­gang port. Data later this month is ex­pected to show the Chi­nese econ­omy grew around 6.6% in 2018, the weak­est since 1990.

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