Growth rate slows, structural reform predicted
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E-mail China Daily, March 6, 2015
A top economic planner said the 7 percent growth target set by the government could raise concerns over whether the rate can be met or a more relaxed monetary policy will be recommended.
Yin Zhongqing, deputy director of the finance and economic committee of the NPC, said liquidity may not meet the demands of the real economy, especially the needs of micro-, small- and middle-size enterprises which have been complaining about the difficulties and high cost of financing.
China plans to lower the annual GDP growth rate to around 7 percent from 7.5 percent, the slowest in 22 years, in light of the ongoing property downturn and deflationary headwinds, according to a government work report delivered by Premier Li Keqiang to the National People's Congress on Thursday.
The Chinese economy, which contributed about 30 percent to the world's total growth in 2013, has been facing downward pressure and has entered a stage known as the "new normal."
"New normal" means slower growth but, more importantly, it will be characterized by sustainable and quality growth for several decades to come, according to Li.
The pace of growth should remain stable within a reasonable range to create at least 10 million new jobs this year, and keep the registered unemployment rate to below 4.5 percent, the work report said.
The upper level of consumer price inflation (CPI) is targeted to be 3 percent this year, down from last year's 3.5 percent. It dropped to a five-year low of 2 percent in 2014.
"The report shows that the government will continue to de-emphasize growth targets and put more weight on the "quality" of development, which is characterized by a more balanced and sustainable economic structure, better income distribution and less damage to the environment," said Wang Tao, chief economist in China at UBS AG.
The report also emphasizes a proactive fiscal policy and prudent monetary policy.
It targets growth of a broad money supply, or M2, at 12 percent compared with real growth of 14.7 percent in 2014, and the fiscal deficit to increase to 2.3 percent of GDP up by 0.2 percentage point from last year's fiscal budget plan.
Considering the lower growth target and slowing of the CPI, M2 could be eased further, said Yin. Proactive finance policies are necessary, he added.
The 11-day NPC meeting is expected to confirm an easing bias for macro policies, as foretold by December's Central Economic Work Conference, and more monetary and fiscal fine-tuning will be seen in the coming months to stabilize growth, economists said.
The People's Bank of China announced a second interest rate cut in less than four months on Feb 28, down 25 basis points for benchmark interest rates.
The central bank also cut the reserve requirement ratio in November to increase market liquidity.
The trimming of all macroeconomic targets in 2015 reflects the Chinese government's awareness of the ongoing slowdown and its resolve to restructure the economy, said investment bank Nomura in a note on Thursday.
Zhao Yang, chief economist of the investment bank, projects China's GDP growth to slow to 6.8 percent this year, with one more benchmark interest rate cut by 25 basis points in the second quarter.
According to Premier Li's work report, China plans to cut a string of macroeconomic targets including retail sales, investments and trades figures.
It set the annual export growth target at 6 percent, compared with the 7.5 percent goal in 2014. It recorded 4.9 percent growth last year, the third consecutive year that it failed to meet the target.
"We expect more structural reforms to be implemented this year, including investment and financing-mechanism reform, pricing reform, fiscal and taxation reforms and state-owned enterprise reform,” said Zhao in the note titled "China: A hopeful year for reforms”.
He added that the progress on local government debt control may be slower than expected and the central government will maintain a proactive fiscal policy stance and an accommodative monetary policy.
Zhao expects consumption to boost the country's GDP by 0.4 to 0.6 percent this year.
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