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

BEIJING (Reuters) – China set a modest annual economic growth target of more than 6% on Friday, promising to create more jobs in cities than last year, as the world’s second-largest economy plans a precise one-year rate which was disrupted by COVID-19.

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

“As a general target, China’s growth rate has been set at more than 6% for this year,” Prime Minister Li Keqiang said in his 2021 work report. “In achieving this target, we have taken into account the recovery of economic activity.”

But the target for 2021 was significantly lower than the consensus of analysts, who expect growth to beat 8% this year. Chinese stocks fell.

The conservative growth target in China reflects an attempt by the public to show a return to economic stability after last year’s COVID-19 revolution, policy advisers said, while also keeping their appetite for debt and risk.

‘It is clear that the growth this year will be more than 6%. The goal is to tell people that we need to focus on higher-quality growth, “Yao Jingyuan, an adviser to China’s cabinet, told Reuters.

While the low GDP target does not mean that the government will tighten policy while many parts of the economy continue to struggle, it will give planners more room to implement reforms.

Premier Li promised to encourage domestic consumption and innovation, as part of a plan to reduce dependence on overseas markets and long-term development technologies.

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

‘The target must be a bottom line. We need more room to put forward difficult reforms, ”said Xu Hongcai, deputy director of the Economic Policy Commission at China Association of Policy Science.

In 2021, China wants to create more than 11 million new urban jobs, Li said in his report delivered at the opening of parliament’s annual meeting, compared to last year’s target of more than 9 million and in line with recent years.

‘QUITE GRAVE’

The government envisages a budget deficit of 2021 of about 3.2% of GDP, less than a target of more than 3.6% last year, although it offers room to finance infrastructure and help small businesses.

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

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

“I believe most of the money will be used for technological research and development and will still provide some buffer for job stability, just in case COVID comes back,” she added.

The quota for issuing special bonds by local authorities is set at 3.65 billion yuan ($ 563.65 billion), compared to 3.75 billion yuan last year.

China also has no plans to issue special treasury bonds this year, having issued such bonds for the first time in 2020 to support the economy.

The outlook for government revenue and expenditure this year is ‘fairly serious’ given the modest availability of funds as spending rises, China said in its annual budget report, which was also released on Friday.

The government has set its 2021 target for consumer price inflation at around 3%. Consumer prices rose by 2.5% last year, reaching a target of around 3.5%.

In a five-year plan issued separately on Friday, China omitted any GDP growth target for 2021-2025 – as opposed to the 6.5% set for the 2016-2020 plan – but said it was meeting its average annual grows over the next five years into a ‘reasonable’ range.

Annual growth in disposable income per capita over the next five years is projected to be ‘in line with GDP growth’, compared to a 2016-20 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 would be kept below 5.5%.

($ 1 = 6.4756 Chinese yuan)