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China Sets 2018 GDP Target at About 6.5% as Stability Push Intensifies
Published on: 2018-03-05
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04 zs majlis estimate 132 abChina 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.

030President 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 favor 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.

Fiscal Trimming

China's official deficit is set to decline in 2018

031The government also signaled 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.

032Other key economic objectives included:

- Retail sales growth of about 10%
- Consumer prices will rise about 3%, the same as last year’s ceiling
- Creation of 11 million new urban jobs, the same as last year
- Yuan exchange rate to remain stable at an equilibrium level
- 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.

The report also said that an increase in the thresholds for personal income taxes was planned.

034Other 2018 objectives released Monday included:

- Cut energy use per unit of GDP by more than 3%, versus 3.4% goal in 2017
- Keep registered urban unemployment rate under 4.5%, unchanged from 2017
- Cut about 30 million tons of steel capacity, compared with 50 million ton goal last year
- Defense spending is expected to rise 8.1%, the quickest pace in three years

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