MNI Update: China Sets 6.5% GDP Growth Rate, Seeks Continuity

--Updates With Comments In Third Paragraph

     BEIJING (MNI) - China aims to keep its economy growing at around 6.5% in

2018, the same as an annual objective set a year ago, while keeping fiscal and

monetary policies somewhat less accommodative. 

     The expansion in gross domestic product will be at a reduced pace compared

with 6.9% actual expansion in 2017, according to reports released on the opening

day of the two-week National People's Congress. 

     "A growth rate of about 6.5% can realize quite substantial employment,"

Premier Li Keqiang told thousands of members of China's political elite gathered

in the Great Hall of the People. The government aims to create 11 million jobs

and ensure the urban unemployment rate stays below 5.5%, a level that is for the

first time set as a primary economic goal, Li said. 

China will more likely exceed these goals, said Liu Yingjie, a the head of

policy research of the State Council, on China Central Television. Only 6.2%

growth is required to create the 11 million jobs targeted by the government, he

said. Each percentage point of growth generates 2 million jobs in China's

service-oriented economy, Liu said.

     Inflation will be capped at about 3%, Li's speech stated. 

     --CONTINUITY AND CONSISTENCY

     While seeking continuity and consistency in macro policies, China will keep

its fiscal policy "proactive," with 2.6% targeted debt-to-GDP ratio, a reduction

of 0.4 percentage point from last year. Fiscal deficit is projected to be

CNY2.38 trillion, the same as last year's budget, Li said.

     "Prudent monetary policy will be kept neutral with appropriate levels of

tightness," Li said. Total social financing, credit and M2 monetary supply will

grow at the same level as the actual rates last year, according to Li.

China's M2 grew at 8.2% in 2017, down from 11.3%, while TSF expanded by 12

percent, a slowdown from a rate of 12.8% in 2016, government data show. No

target for credit expansion was given, only that it will have "reasonable

growth."  

     China will "effectively guide the levels of interest rates, reform and

enhance the supervision of cross-border capital flow," according to Li's report.

"The yuan exchange rate will be generally stable at adaptive and equilibrium

level," it said. 

     --LOCAL GOVERNMENT BONDS

     Local government bond issuance will total CNY1.35 trillion this year, an

increase of CNY550 billion from what was budgeted last year, according to the

report.

China will reduce financial burdens on businesses and individuals by CNY1

trillion this year, including cutting company and citizen taxes by CNY800

billion, according to the report. 

     Premier Li also highlighted the rising tensions with the U.S. on issues

including trade. Without direct reference, Li said China faces threats of

"policy adjustments by major economies, rising protectionism, and regional

political risks," while shifting to new growth drivers. 

Over the weekend, China's officials including Vice Foreign Minister Li Baodong,

warned Beijing has made "all-round preparations" even while saying China doesn't

want a trade war with the U.S.

     Among other major goals, China will cut energy use per unit of GDP by more

than 3 percent, versus 3.4% goal in 2017. It will further the legislation for a

property tax, cut about 30 million tons of steel capacity, compared with 50

million ton goal last year.

     --MORE MILITARY SPENDING

     Reflecting President Xi Jinping's international assertiveness, China will

boost defense spending by 8.1%, the quickest pace in three years. It will also

accelerate exports of its manufactured goods and services under Xi's One Belt,

One Road initiative. 

     On the other hand, China will further cut tariffs on imported vehicles and

other consumer products, while open up more financial sectors to foreign

investors, Li said.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MC$$$$,MI$$$$]