China: The Premier’s Report and Targets

Published on March 4, 2019

The second session of the 13th National People’s Congress (NPC) will kick off tomorrow on the heels of the March 3rd opening of the second session of the 13th National Committee of the Chinese People’s Consultative Conference (CPPCC).

These meetings, collectively known as the “two sessions,” have garnered an inordinate amount of attention in light of China’s efforts to maintain stable growth amid lingering downward pressures.

Premier Li Keqiang, in his government work report, will fine tune with even more detail on some key economic targets as discussed in December of last year at the Central Economic Work Conference (CEWC). The session will also cover broad economic principles and enumerate efforts to further open and stimulate China’s financial and equity markets.

On the Targets

** The GDP target for 2019 will formally be revised down to the 6.0- 6.5% range as we first wrote was likely in December of last year (see SGH 12/24/18, “China: CEWC and Leadership’s 2019 Targets”), lowered from the 6.5% target for 2018.  The majority of local governments have already lowered their GDP target ranges for this year, with over ten provinces also now setting their target as a range as opposed to a precise point. Expectations are that this 6.0-6.5% target range will be high enough to enable China to achieve relatively full employment.

** The CPI target will be set — ambitiously — at around 3% for 2019, the same as in 2018. China’s NDRC (National Development and Reform Commission), however, more realistically expects CPI to come in closer to 2.0%, and perhaps even a tad lower than last year’s 2.1%. The good news is that this (global) inflation no-show will leave plenty of room for any desired macro policy easing maneuvers if needed.

** On monetary policy, Li will reiterate that the government will pursue a “prudent and neutral” course; but he will also call for financial institutions to offer more credit, especially in the form of medium and long-term loans to “the real economy” and small firms. Li will urge relevant authorities to analyze the real lending situation for small and medium size companies, and he will urge the authorities to take additional targeted measures as needed.

** On money supply, Li will, as he did last year, refrain from setting a specific target, as he will also do for Total Social Financing and New Loan Targets for 2019. Senior sources nevertheless emphasize that the entirety of the State Council leadership supports a further moderate loosening of monetary policy, as the economy will be facing greater downside pressure in the first half of this year. While Li will not set specific targets, People’s Bank of China (PBoC) sources predict actual new loans will surpass the 17.0 trillion CNY mark in 2019 — well over the 16.17 trillion CNY registered last year.

** On the currency, Li will reaffirm that the Renminbi exchange rate will be further liberalized, and that China will further accelerate the internationalization of the RMB. Beijing will continue to pursue “a managed floating exchange rate regime based on market supply and demand and with reference to a basket of currencies,” as well as continue to improve the management of cross-border capital flows. And perhaps in a veiled nod to Washington, Beijing will also relax controls on inbound capital from international markets.

Economic Principles and Financial Markets

On broader issues, Li will lay out the government’s goal of stabilizing growth this year, while simultaneously pursuing structural reforms and opening the economy up further. The government will work to ensure stability in “jobs, financial markets, foreign trade, foreign investment, domestic investment, and expectations.”

Li will highlight the financial industry’s central role in the national strategy, will talk of opening the banking, securities, and insurance sectors up further, and will emphasize the importance of developing technologies to incorporate big data and artificial intelligence technology into China’s markets.

The nod to new technology will be aimed clearly at painting a positive backdrop for China’s domestic stock markets, combined with assurances that small and medium-sized investors’ rights will be carefully protected.

Li will thus highlight China’s science and technology innovation board on the Shanghai exchange for which regulations took effect just before the “two sessions.  This “sci-tech” board, and an experiment in registration-based Initial Public Offerings are expected to be highlights of China’s financial market reforms this year.

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