China drops mention of GDP goal as parliament opens, COVID-19 slams economy

Chinese President Xi Jinping (left) and Premier Li Keqiang arrive for the opening session of the Chinese People's Political Consultative Conference at the Great Hall of the People in Beijing. (Photo: AFP/Leo RAMIREZ)

The omission from Premier Li Keqiang's work report marks the first time China has not set a target for gross domestic product (GDP) since the government began publishing such goals in 1990.

The economy shrank 6.8 per cent in the first quarter, the first contraction in decades, hit by the outbreak of the new coronavirus, which started in the central Chinese city of Wuhan.

Given "great uncertainty" caused by the COVID-19 pandemic, Beijing will "give priority to stabilising employment and ensuring living standards", Li told the opening of the National People's Congress.

"We have not set a specific target for economic growth for the year, mainly because the global epidemic situation and economic and trade situation are very uncertain, and China's development is facing some unpredictable factors," Li said.

Domestic consumption, investment and exports are falling, and the pressure on employment is rising significantly, while financial risks are mounting, he warned.

China has set a target to create more than 9 million urban jobs this year, according to Li's report, down from a goal of at least 11 million in 2019 and the lowest since 2013.

Li said China was "keenly aware of the difficulties and problems" the country faced, with COVID-19 sending the world economy into recession.

"We have made major strategic achievements in our response to COVID-19," Li told mask-wearing delegates in Beijing's cavernous Great Hall of the People.

"At present, the epidemic has not yet come to an end, while the tasks we face in promoting development are immense," he continued, adding that China's government must "redouble our efforts to minimise the losses resulting from the virus".

FURTHER FISCAL, MONETARY STIMULUS

China is targeting a 2020 budget deficit of at least 3.6 per cent of GDP, above last year's 2.8 per cent, and fixed the quota on local-government special bond issuance at 3.75 trillion yuan (US$527 billion), up from 2.15 trillion yuan, according to Li.

The government will issue 1 trillion yuan in special treasury bonds this year, the first such issuance. It will transfer 2 trillion yuan raised from the bigger 2020 budget deficit and special anti-coronavirus treasury bonds to local governments, Li said.

Local government bonds could be used to fund infrastructure projects, while special treasury bonds could be used to support firms and regions hit by the outbreak.

Li 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.

Some local governments face relatively big pressure in safeguarding people's livelihood and wages, China's finance minister Liu Kun said on the sidelines of the parliament meeting.

Millions in China are expected by analysts to have lost their jobs as a result of disruptions from the coronavirus pandemic.

The fiscal stimulus in Li's report is equivalent to about 4.1 per cent of China's GDP, according to Reuters calculations based on the fiscal measures announced.

"The annual budget points to fiscal stimulus this year at least on par with that following the global financial crisis," Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note.

But Nie Wen, economist at Shanghai-based Hwabao Trust, said Li's report indicates China will "not resort to mass stimulus that some market players have been betting on".

Nie expects GDP growth to slow sharply this year to around 2 per cent or 3 per cent from last year's 6.1 per cent.

"This year's economic growth needs to reach around 3 per cent to create 9 million new urban jobs," Nie said, adding that the size of the fiscal stimulus announced by Li is about 4 trillion yuan.

In line with the slower economy, China will raise defence spending by 6.6 per cent this year, the slowest in three decades, while the budget for environmental protection will increase a modest 4 per cent.

Monetary policy will be more flexible, Li said, adding that growth in M2 - a broad gauge of money supply - and total social financing will be significantly higher this year.

The People's Bank of China (PBOC) will guide its benchmark lending rate lower, he said.

The central bank has cut the Loan Prime Rate (LPR) by 46 basis points since August 2019, when it replaced the previous benchmark lending rate. The one-year LPR rate is now 3.85 per cent.

The PBOC has cut reserve requirement ratios 10 times since early 2018, including three cuts this year.

Small and midsize companies can delay paying loans and interest by a further nine months, through March 2021, and lending to SMEs by big commercial banks should grow more than 40 per cent, Li said.

The tax and fee burden shouldered by companies will be cut by 2.5 trillion yuan this year, Li said.