China: Major Economic Targets

Published on March 3, 2017

Premier Li Keqiang will address the Fifth Session of China’s National People’s Congress when it convenes starting this weekend, March 5, at the historic Great Hall of the People in Beijing.

In that session, Li will publically lay out the economic development strategy and targets that were presented and approved by General Secretary of the CPC Central Committee, Xi Jinping, at a meeting of the Political Bureau of the CPC Central Committee in Zhongnanhai, Beijing, on February 21.

These will be the main points:

*** The CPC has approved, and Li will announce, a GDP target of 6.5% growth year on year for 2017, the lowest since 2000. The target for CPI growth will be 3%, the same target as last year. The deficit to GDP ratio will also remain at 3%. ***

*** On the monetary front, the target for 2017 M2 money supply growth has been set at 12% growth year on year, one percentage point lower than last year’s target of 13%. And on the instructions of the Political Bureau, the People’s Bank of China (PBoC) will seek to ensure the scale of credit growth does not exceed last year’s. ***

*** On the currency front, Li will not point to either RMB appreciation or depreciation. He will rather reiterate that China will continue to improve its market based mechanism for setting the Renminbi rate to ensure it remains generally stable at an appropriate and balanced level. Separately, Chinese sources expect any RMB depreciation, if it happens, to be modest this year, and less than the depreciations of 2016 or 2015. ***

*** Finally, while Li will not announce any 2017 fiscal revenue growth target in this report, the Political Bureau appears to have signed off on a 5% growth target for fiscal revenues for the year, higher than 2016’s goal of 3%, and the first increase since 2012. Local government revenue targets have also been raised, sharply, from 3.6% in 2016 to 6% in 2017. ***

The Broader Economic Message

In the big picture, Premier Li will pledge in his Government Work Report to seek progress while maintaining stability, aiming for more progress on supply-side structural reform (NB – as opposed to market stimulus).

The Premier will highlight the political significance of 2017 as the 19th CPC National Congress convenes later this year. He will also pay tribute to Xi’s governance and role at the core of the CPC Central Committee.

The Political Bureau, China’s top decision-making body, has already laid out the four top economic priorities for the government for this year. Those are: maintaining economic stability, preventing financial risk, preventing capital outflows, and ensuring FX reserves do not fall too sharply.

Of those, maintaining economic stability is clearly the government’s top priority.

Li will vow to hit the targets for economic and social development laid out for 2017 above, but will stress as was noted at the Central Economic Work Conference (CEWC) downward pressures and potential risks to the economy.

Those include regional financial risks and corporate debt, financial fraud and capital outflows, overcapacity in certain industries, property market instability, and, in a sign of the new political times, will now include worsening trade disputes.

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