Conservative Targets From NPC

A delayed reaction to NPC comments in offshore yuan as it competes with USD strength, USD/CNH last down 85 pips at 6.4830.

• China has set a 2021 growth target of above 6%, confounding the expectations of many who thought the GDP target would be abandoned amid economic uncertainty. China also said it would keep proactive fiscal policy to spur growth. The growth target is conservative, most analysts expect growth of over 8%, helped by negative base effects, the IMF forecast in January that China's economy would grow by 8.1% in 2021.
  • Goldman Sachs, who forecast 8% growth, says: "Even assuming zero sequential growth for each quarter (i.e. economic activity remaining flat at Q4 2020 levels), annual GDP growth would be around 6% year-over-year in 2021."
  • SocGen believes the low growth target could pose risks: "Setting something closer to the pre-pandemic trend (c.6%) would be aiming too low, and financial markets could read it as a sign of significant tightening to come."
• On bonds China plans to issue CNY 3.65tn of special local government bonds in 2021, down from CNY 3.75tn this year. This is higher than expectations of around CNY 3tn, but within ranges and is consistent with the government aiming for a V-shaped recovery and utilizing fiscal stimulus.
  • "The recent warning voiced by prominent fiscal experts on local government debt risk seems to suggest that a number close to the low end of this forecast range for special LGBs is more likely, pointing to a more than 3pp contraction in fiscal impulse in 2021," writes SocGen.
• The fiscal deficit target it set at around 3.2% in 2021, down from 3.6% this year, consensus hovering around 3%.
• The CPI target is set at around 3%, this is in-line with expectations as most provinces have adopted a 3.0% target for 2021.
• On the labour market China said it will target an unemployment rate of 5.5% in 2021, and plans to add more than 11m urban jobs in the period. These targets are in line with expectations, and seen as very achievable.
• The government said it would promote US trade ties based on mutual respect, but also said it would suppress foreign influences in Hong Kong, and remains highly vigilant against Taiwan independence, indicating international tensions will persist.
• Overall the government struck a cautious tone and supportive tone, growth of 6% is below estimates and potential growth. There was also emphasis on monetary policy being prudent, and noted "reasonably ample" liquidity, a hat tip to keeping monetary policy accommodative.