Over the weekend, China’s National People’s Congress was held in Beijing with the government lowering its 2016 GDP growth forecast to a range of 6.5% to 7.0%, slightly softer than the 7% “hard” level targeted in 2015.
According to Dong Tao and Weishen Deng, emerging market fixed income analysts at Credit Suisse, the targeted growth rate is aimed at stablising China’s labour market.
“Premier Li said that 6.5-7.0% GDP growth will allow China to create sufficient jobs and maintain a stable labour market overall,” says Credit Suisse.
“The unemployment rate target is set at below 4.5%, and China aims to create 10 million new urban jobs in 2016.”
While the GDP figure was the headline grabber, and almost unilaterally expected by markets, the government also announced a raft of other economic targets ranging from CPI to unemployment to monetary growth.
The simple-yet-effective table below, supplied by Credit Suisse, reveals how the targets announced for 2016 compare to prior years.
Here’s the group’s analysis on the figures announced by the government.
The growth target for 2016 exactly met analysts’ expectations, but fiscal deficit ended at the low bound of analysts’ 3-3.5% expectations. However, this may not necessarily mean that Beijing does not plan to pursue expansionary fiscal policy this year. In our view, the government put out a less aggressive figure, as fiscal prudence is under scrutiny by some international investors and ratings agency. It seems to be China’s tradition over the past few years that the actual deficit overshot the planned deficit. Benchmarked against 2.3% target and 3.3% estimated actual deficit in 2015, we would not be surprised to see a 3% target and 3.5-4% actual deficit for 2016. For M2 growth, the 13% target met our expectation, but is higher than the PBoC’s reported original plan of 12%. This fits our call that the central bank is turning more accommodative, in an attempt to stabilize the economy.