Show of confidence
With the looming U.S. trade war, China has stuck to its growth target of around 5% this year as it resolves to “meet difficulties head-on,” the country’s premier Li Qiang said. He also unveiled more stimulus measures to support the economy, and called for a more proactive fiscal policy.
State of the economy: “Internationally, changes unseen in a century are unfolding across the world at a faster pace,” Li said at the opening of the annual parliamentary meeting on Wednesday. “An increasingly complex and severe external environment may exert a greater impact on China in areas such as trade, science, and technology.” On the domestic front, Li noted that consumption remains sluggish and the pace of policy implementation is too slow. Still, he insisted that “the underlying trend of long-term economic growth has not changed and will not change.”
More support: China set the deficit-to-GDP ratio target for this year at around 4%, up 1 percentage point from last year. The government will also issue more ultra-long special treasury bonds and local government special-purpose bonds, as well as special treasury bonds to re-capitalize large state-owned banks. New government debt will total CNY 11.86T ($1.63T) to enable a notably higher level of spending this year. “Various funds will be allocated more quickly to local governments to ensure that actual spending begins as soon as possible,” Li said.
Bigger picture: According to ING Economic and Financial Analysis, China repeating its 5% GDP goal despite a more challenging external environment “is a show of confidence and a harbinger of stronger policy support for domestic demand.” Meanwhile, the new debt targets “imply that we will see a stronger fiscal policy push this year, while still keeping in mind long-term debt sustainability considerations,” ING added. Chinese stocks ended higher on Wednesday, while the yuan (CNY:USD) was slightly weaker against the U.S. dollar following its rise on Tuesday.
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