Daily Times

BEIJING: China aims to expand its economy by around 6.5 percent this year, the same as in 2017, while pressing ahead with its campaign to reduce risks in the financial system, Premier Li Keqiang said Monday.

The goal was kept unchanged even though the economy grew 6.9 percent last year and exceeded the government’s target. Sources previously told Reuters that China will maintain its growth target at “around 6.5 percent”.

Economists had already expected the world’s second-largest economy to lose some momentum this year as the government deepens its push to contain a build-up in corporate debt, while a war on pollution and a cooling property market weigh on its manufacturers.

Reinforcing views that Beijing’s attention remains firmly fixed on credit risks and better quality growth, when Li unveiled the GDP target he omitted previous wording saying growth could be “higher if possible.”

In his annual work report, Li also said China has cut its budget deficit target for the first time since 2012, suggesting Beijing will be more watchful of fiscal spending while not tapping the brakes so hard that it risks a sharper slowdown.

“Policy wise, the report definitely has a tightening bias,” said Betty Wang, senior China economist at ANZ in Hong Kong. “In line with expectations, the government is pushing through their reform agenda.”

But last week’s escalation in trade tensions with the United States has jumped to the top of the list of uncertainties facing China this year.

President Donald Trump said he would impose hefty tariffs on imported steel and aluminium to protect US producers, risking retaliation from major trade partners like China and sparking fears of a global trade war.

Li said China opposes protectionism and supports the settlement of trade disputes through negotiation, but will “resolutely safeguard” its legitimate rights and interest.

Yet, China will keep its yuan currency basically stable, Li said in remarks to the opening of the annual meeting of parliament.

He said a steady rise in import and export volumes can be expected this year, a view unchanged from a year ago. No export target was given for the third straight year.

“We can expect continued recovery of the global economy, but there are also many factors that bring instability and uncertainty,” the premier said.

“The policy changes of the major economies and their spillover effects create uncertainty; protectionism is mounting, and geopolitical risks are on the ascent,” Li said.

China’s economic and financial risks “are generally under control” but more needs to be done to resolve issues such as local government debt, Li said. He also said China will improve supervision over shadow banking, internet finance and financial holding companies, and step up risk controls at financial institutions.

Deficit Target Trimmed

Li said China has cut its budget deficit target to 2.6 percent of GDP from 3 percent in 2017. Most analysts had expected it to be maintained or trimmed only slightly.

However, since the economy has been expanding at such a strong pace, analysts said the cut was again more symbolic of Beijing’s intention to further control debt growth.

“The actual figure is even lower than we expected…a 2.6 percent deficit would be about 2.3 trillion yuan ($363.5 billion) in absolute terms, which equals to the 2016 level,” said ANZ’s Wang. “It shows the government’s determination to control leverage in the economy.”

Heavy government infrastructure spending was a major driver behind China’s forecast-beating growth last year, but Beijing has been cracking down recently on some projects launched by local governments as it seeks to curb their spending.

Despite the lower deficit ratio, the absolute amount of the deficit is expected to remain unchanged at 2.38 trillion yuan (272.8 billion pounds), according to the finance ministry’s annual budget report.

Published in Daily Times, March 6^th 2018.