China sets GDP target at about 6.5%, omitting aim to go higher

[BEIJING] China set a 2018 growth target of around 6.5 per cent, omitting an intention to hit a faster pace if possible, as leaders intensify their push to ensure financial stability.

The target was released on Monday ahead of Premier Li Keqiang's report to the National People's Congress gathering in Beijing. While a target of 6.5 per cent is equivalent to last year's goal, the statement didn't include an objective for output growth to be "higher if possible in practice" as it did in 2017.

President Xi Jinping has been intensifying his push to curb pollution, poverty and debt risk at a time when the world's second-largest economy is on a long-term growth slowdown. As a result, numerical GDP (gross domestic product) targets have been de-emphasised in favour of higher-quality expansion since last year.

While growth handily surpassed 2017's target with a 6.9 per cent expansion that was the first acceleration since 2010, economists forecast a moderation to 6.5 per cent this year amid the ongoing deleveraging drive and trade tensions with the Trump administration.

The government also signalled its intent to continue efforts to slow debt growth, and set the budget deficit target markedly lower, at 2.6 per cent of GDP, down from 3 per cent in the past two years.

"The omission from the GDP growth target of 'higher if possible' and the new lower budget deficit target suggest slower growth and a fiscal drag," said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore.

"This makes sense for China in the context of the new focus on financial de-risking, poverty alleviation and environment clean-up, but is less good news at the margin for those economies that have high export exposure to China."

Futures on 10-year sovereign bonds climbed last week after Bloomberg reported the plan to reduce the budget deficit target.

"Li's plan for the year is consistent with a moderate slowdown in real growth," Tom Orlik, chief Asia economist at Bloomberg in Beijing, wrote in a note. "Elsewhere, there were signals of significantly reduced fiscal support for growth, and lower ambitions on capacity closures in the industrial sector."

The authorities reiterated their prior language saying prudent monetary policy will remain neutral this year and that they'll ensure liquidity at a reasonable and stable level. The report said broad M2 money-supply growth would remain moderate, without including a numerical target as had been previously the case. M2 growth slowed to a record low 8.2 per cent in December, down from more than 11 per cent a year earlier.

A separate report from the National Development and Reform Commission said M2 growth would remain roughly in line with last year's real growth rates.

"We will improve the transmission mechanism of monetary policy, make better use of differentiated reserve ratio and credit policies, and encourage more funds to flow toward small and micro businesses, agriculture, rural areas, and rural residents, and poor areas, and to better serve the real economy," state media reported, citing the work report.

The report also said that an increase in the thresholds for personal income taxes was planned.

Other key objectives included: Retail sales growth of about 10 per cent; consumer prices will rise about 3 per cent, the same as last year's ceiling; and creation of 11 million new urban jobs, the same as last year yuan exchange rate to remain stable at an equilibrium level.

BLOOMBERG