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Free AccessMNI EXCLUSIVE: China 2020 Plan Requires 3.5-4% Growth-Source
--Despite No GDP Target, China Plan Requires 3.5-4% Growth
--Unemployment Target, Bank Lending, Targets Look Tough
BEIJING(MNI) - China's economy will need to grow by 3.5-4% in 2020 to meet
objectives set by Premier Li Kequiang's government, even though in a departure
from usual practice it set no formal GDP target, a source close to policy makers
said, in a comment in line with remarks to MNI by policy advisors.
Goals in the official Government Work Report include a surveyed urban
unemployment rate of about 6%, together with the creation of over 9 million
jobs, and growth in resident income in line with the overall economy. The
employment target will be tough to reach, particularly as migrant workers return
to cities as the pandemic eases, and will require expansion of gross domestic
product of as much as 4%, the source with knowledge of policy making said.
The fiscal deficit ceiling was set at more than 3.6% of GDP, up from last
year's 2.8%, but planned issuance of CNY1 trillion of special Treasury bonds,
which do not figure in headline deficit calculations, was lower than some
advisors had expected.
--PBOC
The government's decision to break with custom by opting not to set a GDP
target was taken in order to avoid any conflict with efforts to limit
coronavirus, said Zhao Quanhou, director of the Financial Research Center at the
Chinese Academy of Fiscal Sciences, noting that the employment goals still
require economic expansion. The report lacks detailed reference to further
economic liberalisation, international relations, or to monetary-fiscal
coordination, the source noted, adding that these omissions will not have a
positive effect on the confidence of private investors.
A call for the People's Bank of China to "develop new monetary policy
instruments that can directly stimulate the real economy" may refer to accepting
more corporate bonds as collateral, said the source with knowledge of policy.
Chen Daofu, deputy director at the Financial Research Institute of the
Development Research Center of the State Council, said it could point to the
introduction of more relending facilities. The report said the PBOC would
continue to lower real economy lending rates, with a "prudent and flexible
stance", via reductions in banks' reserve requirements and in policy rates, and
by relending.
Growth in the M2 measure of broad money and in aggregate financing could
approach 10% or more this year, said Chen, after the report anticipated "notably
higher" rates of expansion.
Both economic leverage and the money multiplier - the ratio of M2 to base
money - will rise, Chen said, noting that it would still be easy to keep
consumer price inflation below the ceiling of 3.5%, thanks to falling pork
prices. CPI inflation could even drop to about 1% by the end of the year, he
said, although some index components, such as grain prices, could potentially
contribute to an upside surprise.
But the report's call for big state-owned banks to boost loan to small
businesses by 40%, up from 30% loan growth in 2019, will pile a lot of pressure
on lenders, Chen said, noting that authorities have opted to rely heavily on the
PBOC for stimulus.
The quota for local government special bonds, repaid by the proceeds of
projects they fund, was, at CNY3.75 trillion, less than the CNY4 trillion
recommended by Zhao. This may be due to a shortage of suitable projects, he
said, although he noted that the central government's deficit ceiling of 3.6% of
GDP was higher than his expected range of 3-3.5%. Other policy advisors had
foreseen a deficit ceiling of as much as 4%.
--LOCAL EMPHASIS
The expanded deficit will provide an additional CNY1 trillion of spending
over last year, which, in what Zhao called an unexpected move, will be
transferred to local governments. These will also receive the proceeds from the
issuance of special Treasury bonds, meaning that lower levels of government will
take a more prominent role in driving recovery from Covid-19, he said. The
special Treasuries could recapitalise city and rural commercial banks, which
will drive lending to smaller companies, as well recapitalise policy guarantee
institutions and set up anti-virus funds.
The report calls for further tax and fee cuts for about CNY500 billion, but
Zhao said this will mainly come from implementing or extending current policies,
after CNY2.36 trillion in cuts last year.
Given this year's uncertainty, and the ongoing challenge from coronavirus,
policy makers set no targets for government revenue, Zhao noted.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MC$$$$,MT$$$$,MX$$$$,MGQ$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.