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China's 2021 economic targets, including growth of above 6%, should be easy to exceed and leave policy room to address structural issues as the government fleshes out a new five-year plan which will focus on making growth sustainable over the longer-term, policy advisors told MNI Friday.
Growth this year is likely to come in at over 8% as the economy rebounds from the impact of Covid, a significantly higher rate than targeted in the report delivered by Premier Li Keqiang at the opening ceremony of the National People's Congress Friday morning, they said.
China aims at creating 11 million new urban jobs, versus last year's 11.86 million, capping surveyed urban unemployment at around 5.5%, from 5.2% in 2020. Inflation should be limited to around 3%.
"In general, quantitative targets in the report are relatively easy to achieve, so pressure on policies is small," said Guan Tao, former director general of balance of payments at the State Administration of Foreign Exchange. Policy makers are keen to stabilise debt levels, after leverage rose fast last year, he said.
GROWTH MAY BE 8%
Fiscal targets in the report imply actual economic growth of at least 8%, said a senior advisor, asking to remain anonymous. Policy makers had initially disagreed over the growth target, but if 8% had been adopted, it would have implied the creation of 16 million urban jobs, possibly too high a bar, he added.
The 6% figure "is a minimum target which takes into account the possible continued impact of the epidemic," the advisor said.
A 6% target should also be more in line with the target for 2022, reinforcing an image of policy stability, said Wang Jun, academic committee member at the China Center for International Economic Exchanges. Five-year plan objectives also announced Friday did not explicitly target average growth levels, but policy advisors previously told MNI the economy may grow at 4%-5% over the period.
A flexible monetary stance by the People's Bank of China, trimming expansion of the money supply and credit, will likely see policy continuity from the fourth quarter, with a focus on liberalising the benchmark loan prime rate and the deposit rate, said Chen Daofu, deputy director at the Financial Research Institute of the Development Research Center of the State Council. The PBOC will maintain a stable yuan, and use targeted tools to support tech innovation, small business and green growth.
The M2 measure of broad money should grow by about 10%, he said, as the PBOC maintains ample liquidity while fiscal stimulus is reduced and risks build in international financial markets. The central bank will encourage lenders to cut fees, which would reduce actual loan rates, rather than adjust its own policy rates for now, Chen said.
The budget deficit should be trimmed to about 3.2% of GDP from over 3.6% in 2020, still higher than the long-standing 3% limit. There will be no repetition of last year's issuance of special Treasury bonds but the CNY100 billion reduction in local government special bond quotas to CNY3.65 trillion should permit revenue-poor local authorities to pursue infrastructure projects, said Liu Xiangdong, deputy director of Economic Research at the CCIEE.
Local authorities in poorer central and western regions will likely be the main beneficiaries of a 7.8% increase in central government transfers, with CNY2.8 trillion directly allocated to county-level governments, said Zhang Yiqun, director of a fiscal studies institute affiliated with Jilin province's finance department.
"Fiscal policy will continue to be proactive, and moderate deficit reduction leaves room to ease pressure on local governments," he said.
Authorities will also continue to help local authorities trim off-balance sheet debt, said Zhao Quanhou, director of the Financial Research Center at the Chinese Academy of Fiscal Sciences under the Ministry of Finance. Transfers and bond sales could reduce this burden by about CNY2.5 trillion this year, with 70% coming from off-balance sheet funding vehicles.
But China has little room for adding to the past five years' CNY7.6 trillion in tax and fee reductions, Liu and Zhang said.
Inflation could come in well below the ceiling, at 1-1.5%, with Liu pointing to a strong base effect from last year's Covid hit. But the government is wary of reducing this target lest it be interpreted as a tightening signal, Chen said. At the same time, inflationary pressure is building as commodity prices rebound and authorities need to ensure asset surges do not feed into broader prices, he said.