China yesterday cut its growth target for this year to a range of between 6.5 and 7 percent, as the world’s second-largest economy faces a litany of challenges from overcapacity to weak trade.
The country is a key driver of global growth, but expansion fell last year to 6.9 percent, its slowest in a quarter of a century, and worries over its health have sent tremors through stock markets around the world.
Chinese Premier Li Keqiang (李克強) told the opening of the National People’s Congress parliament, the country’s legislature, that this year’s growth target was “6.5 percent to 7 percent.”
Li struck a deeply realistic tone, cataloguing the impact on the country’s outlook of weak trade growth, fluctuations in commodity and financial markets, and rising geopolitical risks.
“China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle,” he said, adding that the government would increase deficit spending.
“Downward pressure on the economy is growing,” Li said. “Domestically, problems and risks that have been building up over the years are becoming more evident.”
In his nearly two-hour speech, Li said that authorities would make much-needed cuts to overcapacity in the steel, coal and “other industries facing difficulties.”
State-owned enterprises, many of which are plagued by inefficiencies and overcapacities, will be prompted “to make structural adjustments,” he said, with some reorganized, merged, or forced to exit the market.
Such pledges have been made many times before and Christopher Balding, professor of economics at Peking University’s HSBC Business School, said the cuts were insufficient to cancel out additional capacity recently added or still coming online.
“A lot of these problems they’ve been talking about for many years, but nothing has come of it,” he said.
Li also said that this year, central government investment spending would rise to 500 billion yuan (US$77 billion), while nationwide spending on railway construction would exceed 800 billion yuan and road-building would top 1.65 trillion yuan.
Li projected a government deficit for this year of 2.18 trillion yuan, 3 percent of GDP, up from 2.3 percent last year, which would be the highest for several decades.
A 3 percent level has long been seen as a red line by authorities, but Li said that such a ratio was lower than in other major economies.
China was also targeting consumer inflation of about 3 percent and unemployment within 4.5 percent, Li said but did not give a specific target for trade, only aiming for “a steady rise in import and export volumes” and “a basic balance in international payments.”
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