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

Beijing: China set a 2018 growth target of around 6.5%, omitting an intention to hit a faster pace if possible, as leaders intensify their push to ensure financial stability.

The target was released Monday ahead of premier Li Keqiang’s report to the National People’s Congress gathering in Beijing. While a target of 6.5% 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 targets have been de-emphasized in favour of higher-quality expansion since last year.

While growth handily surpassed 2017’s target with a 6.9% expansion that was the first acceleration since 2010, economists forecast a moderation to 6.5% 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% of GDP, down from 3% 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.”

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% in December, down from more than 11% 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. Bloomberg