China lowers economic growth target to around 7 %

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/10

In his opening address to this year’s National People’s Congress, premier Li Keqiang said the GDP growth target would be lowered from last year’s target of around 7.5 % to “around 7 %”. The vague phrasing suggests that the growth target is no longer a strict anchor for policy guidance. The numerical growth target can be perceived as an outdated approach to directing economic growth. Shanghai, for example, no longer even publishes a growth target. Instead, the Chinese should place emphasis on structural reform of the economy and tolerance of a lower-growth paradigm on the condition that employment situation remains strong.

Li said fiscal policy would be relaxed to sustain economic growth. Government spending is expected to rise this year to 17.15 trillion yuan (€2.5 trillion), an increase of about 11 % from 2014. The budget deficit would rise to 2.3 % of GDP. Special financing would be directed to e.g. railway and water supply projects, as well as agricultural reform. The inflation target falls from last year’s 3.5 % to 3 %, while growth in the broad money supply (M2) is predicted to expand about 12 %.

Li’s speech reiterated the familiar rhetoric on the inevitability of reform and the theme that high growth becomes increasingly challenging to sustain as China moves forward. In particular, Li stressed the need for reforming state-owned enterprises and continued deregulation of financial markets. Corruption and environmental pollution will also get higher profiles. Energy intensity and carbon dioxide intensity will both be cut by 3 % this year.

Nearly 3,000 representatives attended Thursday’s (Mar. 5) opening session of the National People’s Congress. Much of their duties involve rubber-stamping Communist Party decisions and familiarising themselves with the views of party leaders. A parallel People’s Political Consultative Conference is being held in tandem to provide input to the NPC. Attendees to the People’s Conference include representatives of NGOs and ethnic minority groups, as well as representatives who are not Communist Party members.

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