MNI EXCLUSIVE: China May Target 2020 GDP Growth Of 5.5-6%

     BEIJING(MNI) - China may target 2020 growth in a range between 5.5% and 6%

and signal that it could tolerate inflation target above 3% as the coronavirus

outbreak adds to already strong headwinds, sources close to policy makers told

MNI.

     The first quarter may see growth halved to 3% from 6% in Q4, and the

epidemic is likely to remain a drag on activity into March, said a source asking

not to be named, noting that the country only needs to grow by 5.6%-5.7% this

year to reach the goal of doubling GDP from 2010, thanks to upwards revisions of

previous years' growth.

     The National Bureau of Statistics said last month that economic growth for

each year between 2014 and 2018 had been revised up by 0.1 percentage point.

This year's growth target had been set to be announced during the National

People's Congress on March 5, but the event has been postponed due to the

epidemic.

     While production and consumption should be largely back to normal by Q2,

stimulus will still be needed, especially via investment, the source said. The

investment focus will shift to new infrastructure, including in areas such as

education and healthcare, which should help bolster future consumption, he said.

     Policy makers are also likely to set up a higher threshold for maximum

inflation this year, considering the lingering effect on pork prices of African

swine fever and the supply-side hit from measures to contain the virus,

according to a second policy advisor, who also requested anonymity. Greater

tolerance for inflation would not be likely however to prompt the People's Bank

of China to further relax its moderate easing bias, the source said.

     The restoration of production following virus disruption has been slower

than expected in early February, both sources said. February could see a GDP

contraction on a monthly basis, the second source said, with production only

back to 30%-40% of capacity. An optimistic scenario might see output back to 80%

levels by the end of March, said the second source, who saw Q1 growth at

possibly 3%-4%.

     --CONSUMPTION TO RECOVER MORE QUICKLY

     Zhong Nanshan, a prominent scientist leading a panel of experts to help

control the coronavirus outbreak, said on Thursday in a briefing that China is

confident of controlling the virus by the end of April.

     Supply disruption should keep inflation at relatively high levels in the

short term, as consumption should recover more quickly than production, the

second source said, noting that pork prices remain elevated.

     China set its inflation target at "around 3%" for 2019, when the actual

rise in prices came in at 2.9%. Consumer price inflation jumped to an eight-year

high 5.4% on an annual basis in January. The rate of increase in CPI should

soften this month, due to a base effect with 2019, when Chinese New Year fell in

February, although it should jump again in March as consumption rebounds, the

advisor said.

     The fact that inflation has been fuelled by supply-side disruption will

mean that it only curbs rather than impedes PBOC easing, a third source said.

     Authorities will be particularly concerned about unemployment, with so many

factories idle, the advisors said.

     Keeping surveyed urban unemployment below the targeted ceiling of 5.5%

might not be possible if growth falls short of 6%, the third source said. The

indicator, introduced in 2018, rose to 5%-5.3% last year, up from 4.8%-5.1% in

2018. Officials will have to bail out struggling companies in the small business

sector, which provides 80% of jobs, to avoid large-scale bankruptcies, the

source said.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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