In what’s good news for Australia and other major commodity producers, China retained its 7.5% GDP target for this year, according to a speech to the country’s rubberstamp national parliament yesterday by Premier Li Keqiang. It is in fact the third successive year where the GDP target has been 7.5%.
The inflation target is also unchanged from 3.5%.
The details were contained in the opening speech from Premier Li to the parliament yesterday.
He said the 7.5% target "is in keeping with our goal of finishing building a moderately prosperous society in all respects, and it will boost market confidence and promote economic structural adjustment.
"More importantly, stable growth ensures employment." The government wants to create 10 million new jobs this year.
China sets 7.5% GDP target
.png)
China’s growth in 2013 was 7.7%, its slowest rate for 14 years. But it added hundreds of billions of value to the size of the economy, which in turn needed record imports of iron ore, copper, soybeans, oil and a host of other commodities.
More will be needed this year, meaning the country will again be the biggest influence on world commodity markets, though months of instability in Russia and the Ukraine will keep prices higher than they looked a month ago.
Sustaining a "reasonable" pace of expansion this year will be tough because of the slowdown seen at the end of 2013 and early this year – though the Lunar New Year holiday break always distorts the data in January and February.
February data starts flowing with the trade report on Saturday, inflation will follow a day or so later.
On top of this, the country has been through two ot three periods of very tight credit conditions as authorities sought to crimp property expansion, banking lending and speculation.
As well the government has engineered a sustained fall in the value of the Yuan to take the heat out of speculative money inflows and so-called shadow banking and lending.
"China is still a developing country in the primary stage of socialism, and development remains the key to solving all our country’s problems," Premier Li said yesterday. "We must keep economic development as the central task and maintain a proper economic growth rate."
The government did give itself a tiny amount of flexibility in setting the growth target.
According to translations, Premier Li said the target was “about” 7.5%". Last month, Zhou Xiaochuan, China’s central bank governor, had said that the economy would grow "between 7% and 8% this year". So there is a bit of room for growth to fall below 7.5% this year.
To shift the growth away from the export- and investment-led model, China will make domestic demand the "main engine" that drives growth and take investment as the "key" to maintain stable growth, the Premier’s report said.
Premier Li also announced plans to set up a deposit insurance system, considered a precondition for freeing deposit rates, one of the last and most important step of interest rate liberalisation. (The last will be full convertibility of the yuan.)
An insurance system will help settle nerves about weak shadow banking groups and the impact of credit squeezes, like the ones we saw in 2013 which raised tensions inside China about the health of banks and other financial groups.
The decision came along with repeated promises to expand the floating range of exchange rates and move toward yuan convertibility under capital accounts. The current campaign to lower the value of the yuan is seen as a precursor to an imminent decision to allow the currency’s trading band to grow from the current 1%.
The Premier’s report also said China will overhaul the current financing scheme for local governments to issue bonds, its latest step to contain the mounting debt problems.
Despite various estimates on the size of China’s local government debt, the National Audit Office issued its own audit results at the end of last year, which estimated local government debt was 10.89 trillion yuan ($US1.78 trillion) as of the end of June 2013. That remains a major headache for the government.
