China targets slower economic growth as headwinds gather

China targets 2022 GDP growth of around 5.5%; China targets budget deficit at around 2.8% of GDP and CPI at around 3%; 7.1% hike in defence spending

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As economic conditions soften, the central bank has started cutting interest rates, local governments have expedited infrastructure spending and the finance ministry has pledged more tax cuts. — AP file photo
by

Muzaffar Rizvi

Published: Sat 5 Mar 2022, 7:32 PM

China on Saturday targeted slower economic growth of around 5.5 per cent this year as headwinds including an uncertain global recovery and a downturn in the country’s vast property sector cast a pall on the world’s second-largest economy.

As economic conditions soften, the central bank has started cutting interest rates, local governments have expedited infrastructure spending and the finance ministry has pledged more tax cuts.

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There were few surprises in Premier Li Keqiang’s annual work report to the annual session of parliament, as China puts a premium on stability in a politically sensitive year during which President Xi Jinping is expected to secure a precedent-breaking third leadership term in the autumn.

“We must make economic stability our top priority,” Li told delegates gathered at the cavernous Great Hall of the People on the west side of Tiananmen Square.

Amid coronavirus curbs, this year’s parliamentary meeting will be the shortest ever at 6-1/2 days.

“The world economic recovery lacks drive, and commodity prices remain high and are prone to fluctuation. All of this is making our external environment increasingly volatile, grave and uncertain,” Li said.

While the government vowed to ensure supply of key agricultural products including grains, the agriculture minister said on the sidelines of parliament China’s current wheat crop-growing condition could be the worst in history.

Li said that maintaining steady export growth is getting harder, and supply of energy and raw materials remains inadequate.

Also weighing on the economy is a property downturn triggered by a government campaign to control borrowing among highly indebted developers. An ensuing tightening in liquidity squeezed the sector and chilled buyer sentiment.

Still, China left its consumer price index target unchanged at around three per cent.

Last year, China’s gross domestic product grew 8.1 per cent, beating the government’s target of over six per cent, helped by robust exports to economies hit by Covid-19 and a low statistical base in 2020, when the pandemic began to spread worldwide.

Some analysts said this year’s goal is tougher to reach.

“It may be a bit difficult to achieve the target, and we need to take some measures to achieve it,” said Zong Liang, chief researcher at Bank of China.

‘OVERSEAS RISKS’

While investing abroad under China’s Belt and Road initiative, China must guard against “overseas risks”, Li said, in contrast to his push last year for outbound investment and cooperation.

He did not mention the war in Ukraine, in which China has refused to condemn Russia’s attack or call it an invasion. As usual, Li’s report was primarily focused on economic issues.

Apart from the pandemic, implications from the Russia-Ukraine conflict for supply chains and price volatility also cloud China’s near-term outlook.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said Li’s caution reflects potential geopolitical risks. “The Ukraine crisis and the sanctions imposed by many countries on Russia have made such risks clear,” he said.

China faces defence challenges on several fronts, from Chinese-claimed Taiwan to U.S. naval and air missions in the disputed South China Sea, and a separate budget report on Saturday said defence spending will rise 7.1% this year, more than last year’s increase.

China remains committed to the Communist Party’s policy of “resolving the Taiwan question in the new era”, Li said.

JOB TARGETS

Guo Tianyong, an influential economist at the Central University of Finance and Economics in Beijing, told Reuters that hitting five per cent growth is crucial. “If growth is lower than five per cent, it could affect job creation,” he said.

The government set a target to create at least 11 million urban jobs, unchanged from last year’s goal.

China targeted a budget deficit around 2.8 per cent of gross domestic product, narrowing from last year’s goal of around 3.2 per cent, while the quota for local government special bond issuance was set at 3.65 trillion yuan ($578 billion), flat from last year.

The budget deficit ratio was lowered to boost fiscal sustainability, Finance Minister Liu Kun said on the sidelines of parliament. — Reuters

Muzaffar Rizvi

Published: Sat 5 Mar 2022, 7:32 PM

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