China’s communist rulers avoided setting an annual growth target for the first time in decades Friday, as they struggle to deal with the “immense” economic challenges caused by the coronavirus pandemic.
Analysts say the move points to China missing its key political goal of doubling gross domestic product from 2010 levels, a blow to the ruling party’s pledge to provide prosperity in exchange for unquestioned political power.
The government usually sets economic growth targets that it regularly exceeds.
But this year, given “great uncertainty” caused by the pandemic, Beijing will not set a target but “give priority to stabilising employment and ensuring living standards”, Premier Li Keqiang told the opening of the National People’s Congress.
Before the pandemic, Beijing was widely expected to announce a growth target of around six percent this year.
But with the COVID-19 shock causing economic growth to shrink 6.8 percent in the first quarter, such a target was seen as no longer feasible.
Apart from raising its budget deficit target this year, China will issue another one trillion yuan ($140 billion) of government bonds for COVID-19 control, Li said, calling these “extraordinary measures for an unusual time”.
The added funds will be transferred to local governments, to be primarily used for ensuring employment, meeting basic living needs, and protecting market entities.
Li also said governments at all levels should “tighten their belts”, and that all types of surplus, idle and carryover funds will be withdrawn and re-allocated, to be put to better use.
Beijing will also issue 3.75 trillion yuan ($526 billion) in special local government bonds this year, in part to boost infrastructure spending in the virus-hit economy.
It will make further tax and fee cuts as well to help firms.
China has said it will tap its massive domestic consumer market to support the economy after external demand collapsed.
But the official urban unemployment rate rose to six percent last month, with analysts saying the real figure could be even higher.
Li said the government aims to ensure the urban unemployment rate remains around this figure, through the creation of over nine million new jobs.
– Large price to pay –
The growth target is typically seen as a signal of the resources leaders are willing to spend to shore up the economy.
Tommy Xie, head of Greater China Research at OCBC Bank, told us this year’s move is “realistic”, reflecting global uncertainties from both COVID-19 and rising geopolitical tensions.
Analysts, however, believe the country still holds an implicit growth target of two to three percent for 2020, given its ambitious employment goals.
Li said China is “keenly aware of the difficulties and problems” the country faces, with COVID-19 sending the world economy into recession.
Although Beijing had “paid a large price” economically in its virus fight, he added it “was a necessary and worthy price to pay”.
However, Xie said China’s support measures remain below levels seen in other countries, lagging behind a global norm of around 10 percent of GDP.
Using similar guidance, this would translate to around 10 trillion yuan in stimulus.
Instead, Beijing has left itself “an open-ended option” for stepping up fiscal support if the situation worsens, he said.
Song Houze, a research fellow at the Paulson Institute, believes Beijing likely expects a “slow and uncertain” recovery from COVID-19.
Iris Pang of ING told us that officials’ support were below her expectations, although the work report tends to understate the fiscal budget — meaning authorities could beef up numbers if jobs do not recover or trade tensions worsen.
She added the report this year made “wise” political choices, given that having no growth target is less damaging than failing to meet a lowered one.