China – More spending to meet the 5% target

Each year, Chinese policymakers gather at the annual meeting of National People’s Congress (NPC) in March to approve and announce the annual GDP growth target, economic priorities and plans, and the fiscal budget for the year. This year’s meeting began on March 5 and will last for a week till 11 March.

The meeting was kicked off by Premier Li Qiang’s delivery of the government work report. Besides a few specific policy targets being mentioned, as usual the report contains high-level policy language that provides directions for policymaking to be implemented throughout this year.

A growth target of around 5% is being set, again

This year’s GDP growth target is set at “around 5%”, now for the third year. This signals Beijing’s confidence in the Chinese economy despite domestic and external challenges, notably the risk of escalating tit-for-tat trade war with the US.

Beijing also acknowledged the weakness presented in the domestic economy. The lower inflation target of 2% from 3% last year can be seen as a signal that Beijing acknowledged the deflation risk in the economy, even though this is still much higher than the actual CPI inflation of just 0.2% last year.

We think the 5% growth target is ambitious given the list of challenges that the Chinese economy is facing. These include the ongoing property sector downturn, the yet-to-recover private business confidence, weak employment and income outlook, and the risk of losing exports as a reliable growth engine this year.

For full text see attached PDF-Version.