MNI 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

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