China has cut its growth target this year as it pushes through painful reforms to address a rapid buildup in debt and constructs a “firewall” against financial risks.
China aims to expand its economy by around 6.5 percent this year, Chinese Premier Li Keqiang (李克強) said at the opening of the National People’s Congress yesterday.
It targeted growth of 6.5 to 7 percent last year and ultimately achieved 6.7 percent, the slowest pace in 26 years.
A lending binge and increased government spending have fueled worries among China’s top leaders about elevated debt levels and an overheating housing market.
The target for broad money supply growth was cut to around 12 percent from about 13 percent for last year, while the government’s budget deficit target was kept unchanged at 3 percent of GDP.
China will continue to implement a proactive fiscal policy and maintain a prudent monetary policy, Li said, adding that the government would press on with supply-side reforms and take steps to control risks and ensure safety in the financial sector.
“In general, China’s policy stance has turned to ‘risk control’ and ‘bubble deflating.’ This means that monetary policy will gradually tighten,” said Zhou Hao (周浩), emerging markets economist at Commerzbank AG in Singapore.
The target for consumer price inflation this year was kept unchanged at 3 percent.
“At present, overall, systemic risks are under control, but we must be fully alert to the build-up of risks,” Li said.
China should have higher levels of vigilance concerning risks from non-performing assets, debt defaults, shadow banking and Internet finance, he said.
“We will ensure order in the financial sector and build a firewall against financial risks,” he said, adding that it will steadily push forward with de-leveraging, mainly in the non-financial corporate sector.
The finance ministry pledged in its work report released yesterday to clamp down on local government debt risk.
The central bank said in a working paper last month that the debt de-leveraging process should be managed prudently to help avoid a liquidity crisis and asset bubbles.
“We will apply a full range of monetary policy instruments, maintain basic stability in liquidity, see that market interest rates remain at an appropriate level and improve the transmission mechanism of monetary policy,” Li said.
China will also press on with asset securitization and debt-to-equity swaps this year.
It will continue to implement a city-based policy to reduce real-estate inventories, mainly in third and fourth-tier cities, Li said, and in addition will push forward with reform of state-owned firms and assets this year.
China is also looking to shutter more “zombie” enterprises, or firms with inefficient surplus capacity that are saddled with debt.
The National Development and Reform Commission said in a work report released at the opening of the gathering that it would shut or stop construction of coal-fired power plants with capacity of more than 50 million kilowatts.
China will also cut steel capacity by 50 million tonnes and coal output by more than 150 million tonnes this year, the commission said.
Fixed-asset investment is expected to rise about 9 percent this year, down from last year’s target of 10.5 percent.
“As overcapacity is cut, we must provide assistance to laid-off workers,” Li said, adding that funds and subsidies should be promptly allocated and local governments and enterprises should ensure such workers can find new jobs.
The government aims to create more than 11 million new urban jobs this year, even as employment pressure grows.
“This year’s target for urban job creation is 1 million more than last year, underlining the greater importance we are attaching to employment,” Li said.
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