China: CEWC and Leadership’s 2019 Targets

Published on December 24, 2018

China’s President Xi Jinping, who is also General Secretary of the Communist Party of China’s Central Committee, presided over the 2018 Central Economic Work Conference (CEWC) at the Jingxi Hotel in Beijing from December 19 to 21. The meeting was attended by all members of the Central Committee, ministers, and provincial leaders.

These are the major economic policies and targets for 2019 that were laid out at the meeting:

GDP Targets – The CEWC suggested a GDP growth target of 6.0-6.5% for 2019, down from the 6.5% target for 2018, indicating Beijing’s tolerance for a more moderate rate of expansion. Xi maintained that the central government had already countered the sharper downward pressures and put fears of an economic hard landing behind it but said it will further enhance “countercyclical” adjustments in 2019, implementing “a proactive fiscal and a prudent monetary policy” with the overall aim of ensuring economic growth of greater than 6.0%.

Trade Negotiations – On trade issues, Xi expressed a strong willingness to reach an agreement with the US, but warned that Beijing must be prepared in case a deal was not to be reached. Even in the case of a full-blown trade war with the US, Xi stated China’s economic growth must be kept above 6.0% in 2019 at all costs.

CPI and Monetary Easing – The CEWC suggested a consumer inflation (CPI) target of around 3.0% for 2019, unchanged from the target for 2018, and suggested that the prudent monetary policy should be neither too loose nor too tight, keeping liquidity reasonably ample and improving the monetary policy transmission mechanism. Premier Li Keqiang added that the government will set up prudent monetary policy with “some loosening” next year as downward pressure on the economy increases. The People’s Bank of China it was agreed should be ready to deliver 4-5 more RRR cuts for next year, and even a cut in the benchmark interest rates, if “very necessary,” should not be ruled out.

Foreign Exchange Policy – The CEWC suggested the Renminbi exchange rate should be kept “basically stable at a reasonable and balanced level.” The PBoC predicts that even in the case of a full-blown trade war between China and the US, the RMB will appreciate against the USD next year, with a base case expectation for a 3-5% appreciation against USD in 2019.

Deficit and Fiscal Targets – The CEWC suggested a budget deficit target of 3.0% of GDP in 2019, higher than the 2.6% target in 2018. The CEWC decided to rely on deeper tax cuts and larger fiscal spending to manage economic headwinds in 2019. Fiscal policy, it said, should be aimed at enhancing efficiency, implementing larger-scale tax cuts and fee reductions, and substantially increasing the size of local government special bonds. The CEWC suggested a reduction in taxes on businesses and individuals by about 1.0-1.2 trillion yuan in 2019, compared to 800 billion yuan in 2018.

Unemployment Targets – The CEWC aims to keep the surveyed urban unemployment rate within 5.5% in 2019, unchanged from 2018. The country also aims to create over 11 million new urban jobs next year and to keep the registered urban jobless rate within 4.5% in 2019, unchanged from 2018.

Technology and Manufacturing – The CEWC suggested that despite the concerted effort, due to US sensitivities, by all levels of government not to explicitly mention the “Made in China 2025” policy to the public, all levels of government should nevertheless speed up the implementation of the strategy, encourage technology innovation, and shore up weaknesses in major equipment manufacturing in efforts to become a global manufacturing giant. All levels of government it was said must seek to promote the development of integrated circuits, 5G mobile communications, aircraft engines, new energy vehicles, and new materials.

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