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Free AccessMNI EXCLUSIVE: China May Aim At 3% Growth, No Formal Target
--Chinese Officials See 3% Growth As Reasonable
--But 3% Only A Guideline, Not A Target
BEIJING(MNI) - A consensus is forming among Chinese officials that the
country requires economic growth of about 3% in 2020, although in a departure
from usual practice, a formal target may not be announced at next week's
National People's Congress, policy advisors told MNI, following speculation the
government might forego a GDP objective altogether due to global coronavirus
disruption.
While the Covid-19 pandemic makes setting a target difficult, officials see
setting at least a guideline for growth as unavoidable, as it feeds through to
other objectives, such as for investment, employment and especially for local
governments, said an advisor close to policy makers.
The guideline, which may not be announced with fanfare but rather be
communicated to officials as a rough minimum expectation, would be for around 3%
although there is still too much uncertainty over the global spread of the virus
for it to be ready in time for by the May. 22 NPC, he noted. The meeting could
also detail a CNY10 trillion fiscal stimulus, other advisors said.
--PROVINCIAL CLUES
Previously, the GDP target has been unveiled during the Congress, although
preceding local government people's congresses usually provide strong clues.
Only two provinces, Yunnan and Sichuan, have held such gatherings since the
virus outbreak, and, while neither set growth targets, Sichuan's government said
its economy would expand at a rate two percentage points higher than the
national average in 2020. This indicates there may still be an overall national
GDP objective, the advisor said.
Instead of insisting on a fixed target, the government could instruct local
governments to set appropriate goals according to their situations, he
suggested, noting that growth of about 3% for the country would be reasonable
given expectations for a Q2 recovery from Q1's record 6.8% contraction.
The NPC will repeat its six top policy priorities -- employment, people's
livelihood, development of market entities, food and energy security, the
stability of industrial and supply chains, and the smooth running of
communities, he said.
--INFLATION
Targets are likely to be set for inflation of about 3.5%, up from about 3%
in 2019, and for a fiscal deficit ceiling of 3.5-4%, up from 3%, other advisors
told MNI. The Congress may also announce planned issuance of at least CNY1
trillion in special treasury bonds.
The People's Bank of China's policy stance will continue to be set as
"prudent", though emphasising flexibility, said a monetary policy advisor. This
will imply an easing bias, the advisor said, pointing to the fastest growth in
the M2 measure of broad money in three-and-a-half years in April, when it
expanded by 11.1% year-on-year, according to PBOC data. While this shows the
PBOC is responding to the impact of Covid-19, there is also a chance it might
spark unhealthy financial and property speculation, the advisor said.
M2 growth will accelerate further as the PBOC injects liquidity and cuts
banks' reserve requirement ratios in order to support government bond issuance
and credit expansion, but for the year as a whole growth should moderate to
about 10%, the advisor said. The NPC has not targetted M2 since 2018.
With an inflation target of about 3.5%, there will be room for further
reductions in the benchmark loan prime rate, although maybe not in the deposit
rate, the monetary policy advisor said. Inflation could even fall to lower than
2% by the end of the year, due to a base effect versus a pick-up in prices at
the end of 2019.
While an expanded fiscal deficit ceiling would make available CNY700
billion-CNY1.2 trillion in funds, the Congress is likely to leave the bulk of
the fiscal stimulus for projects funded by local government special-purpose
bonds, issuance quotas for which could be set at CNY3.5 trillion to CNY4
trillion for the year, a fiscal advisor said. Sales of special treasury bonds,
which do not figure in narrower measures of headline government accounts, could
be set at more than CNY1 trillion initially, but could also be expanded in
future according to need, he said.
--FISCAL STIMULUS
Overall, the fiscal stimulus package may total about CNY10 trillion this
year, and could be levered to as much of CNY100 trillion in total by the end of
2021.
The Congress is likely to target urban unemployment of no more than 5.5-6%,
and creation of 13 million jobs, in line with the economy's performance every
year since 2015, advisors said, acknowledging that real unemployment levels,
once migrant workers are factored in, would be higher. Employment ranks first
among the NPC's six priorities, as it pursues social stability, the first
advisor said.
The Congress is usually held in early March but this year's was postponed
due to the epidemic, and it will be held in a shorter format with a reduced
number of participants.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MC$$$$,MT$$$$,MX$$$$,MGQ$$$]
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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.