China sets the ‘low bar’ for GDP growth and promises more jobs

BEIJING (Reuters) – China set a modest annual economic growth target of over 6% on Friday and pledged to create more jobs in cities than last year as the world’s second largest economy carefully planned a year that was disrupted by COVID-19.

In 2020, for the first time since 2002, China dropped a gross domestic product growth target from the prime minister’s work report after the pandemic devastated its economy. China’s GDP grew by 2.3% last year, the weakest in 44 years, but it is the only major economy to report growth.

“As an overall target, China’s growth rate for this year has been set at more than 6%,” said Prime Minister Li Keqiang in his 2021 work report.

But the target for 2021 was well below the consensus of analysts, who expect growth could beat 8% this year. Chinese stocks have fallen.

China’s conservative growth target reflects a public effort to demonstrate a return to economic stability following last year’s COVID-19 upheaval, policy advisers said, while also keeping the hunger for debt and risk in check.

“It is clear that growth will be more than 6% this year. The goal is to tell people to focus on higher quality growth, ”Yao Jingyuan, an adviser to the Chinese cabinet, told Reuters.

While the low GDP target does not mean the government will rush to tighten policies, while many parts of the economy are still struggling, it will give planners more room to implement reforms.

Premier Li pledged to boost domestic consumption and innovation as part of a plan to reduce reliance on overseas markets and technology for long-term development.

As such, China plans to increase annual research and development spending by more than 7% every year through 2025. [L2N2L304E]

The goal must be a bottom line. We should have more room to implement difficult reforms, ”said Xu Hongcai, deputy director of the economic policy committee at the China Association of Policy Science.

By 2021, China will aim to create more than 11 million new urban jobs, Li said in his report released at the opening of this year’s parliamentary assembly, up from last year’s target of more than 9 million and in line with recent years.

‘QUITE GRAVE’

The government is targeting a 2021 budget deficit of about 3.2% of GDP, less than a target of more than 3.6% last year, but leaving room to finance infrastructure and support small businesses.

Iris Pang, chief economist for Greater China at ING, said continued fiscal space is a more meaningful goal than the growth target.

“The very low GDP growth target is like there is no target at all because the consensus is 8% and my forecast is 7%,” Pang told Reuters.

“I think most of the money will be used for technology R&D and will continue to provide a buffer for job stability in case COVID makes a comeback,” she added.

The quota for local government special bond issues was set at 3.65 trillion yuan ($ 563.65 billion), down from 3.75 trillion yuan last year.

China also has no plans to issue special government bonds this year, as it first issued such bonds in 2020 to support the economy.

The outlook for government revenues and expenditures this year is “quite serious,” given the modest availability of funds as spending increases, China said in its annual budget report, also released Friday.

The government has set its consumer price inflation target for 2021 at around 3%. Consumer prices rose by 2.5% per year last year, falling below the target of about 3.5%.

In a five-year plan released separately on Friday, China did not drop a GDP growth target for 2021-2025 – unlike the 6.5% set for the 2016-2020 plan – but it said it would cut its average annual growth over the EU. in a “reasonable” range for the next five years.

According to the plan, annual growth in disposable income per capita over the next five years will be “in line with GDP growth”, compared to a 2016-2020 target of more than 6.5%.

There was also no target for job creation over the next five years, although the government said the urban unemployment rate will remain below 5.5%.

($ 1 = 6.4756 Chinese yuan)