China sets growth target of 6.5% as debt crackdown continues

Chinese President Xi Jinping and Chinese Premier Li Keqiang attend the opening of the first session of the 13th Chinese People’s Political Consultative Conference (CPPCC) at The Great Hall of People on March 3, 2018 in Beijing, China. (Photo by Lintao Zhang/Getty Images)
  • China’s 2018 growth target is in line with last year, amid plans for tighter government spending.
  • The announcement was made Chinese Premier Li Keqiang in an address to the National People’s Congress.
  • As part of the Congress, delegates will remove the term-limit for President Xi Jinping, clearing the way for him to rule indefinitely.

China has set a GDP growth target of 6.5% in 2018 — unchanged from 2017 and in line with expectations.

The updated target was set out by Premier Li Keqiang in an address to the National People’s Congress, the annual sitting of Parliament which is scheduled to run for the next two weeks.

Of particular note was the government’s announcement that it’s now targeting a budget deficit of 2.6% of GDP, significantly below forecasts of 2.9% and down from a target of 3% at the same time last year.

The move to rein in some aspects of government spending comes as authorities continue to crack down on debt-riddled private companies in an effort to control systemic risks to China’s financial system.

Stocks in mainland China are trading flat in the wake of the announcement, with the Shanghai Composite index down 0.16% in the afternoon lunch break.

According to Daily FX senior strategist Ilya Spivak, the muted reaction suggests markets are more focused on other drivers of short-term price action.

“We saw above-target fiscal spending and revenue in 2017. At the same time, tax cuts and a variety of on-coming infrastructure projects were announced,” Spivak said.

“This seems to imply that Beijing expects to be able to reduce the deficit without sacrificing an expansionary fiscal stance as a lever to prop up growth.”

“That sounds rosy, but the markets are clearly willing to give officials the benefit of the doubt for now.”

“More pressing issues like the election in Italy, a worrying uptick in protectionism and prospects for a faster-than-expected Fed rate hike cycle are probably of greater immediate concern.”

Unlike previous years, Li’s address didn’t include an specific update on monetary policy. Instead, the report said growth in the money supply would remain consistent with 2017, when it grew by 8.2%.

Annual budgeted defence spending rose by 8.1% to 1.1 trillion yuan ($US224 billion), which was a bigger rise than the prior year.

In addition to reducing debt levels, China also announced large production cuts in core industries, aiming to reduce production capacity for steel and coal by 30 million tonnes and 150 million tonnes respectively.

The report made no specific mention of the United States and the recent import tariffs announced by the Trump administration.

“China calls for trade disputes to be settled through discussions as equals, opposes trade protectionism, and will resolutely safeguard its lawful rights,” Mr Li said.

As part of this year’s Congress, delegates will vote to abolish the two five-year term rule for the President and Vice President, clearing the path for President Xi Jinping to rule indefinitely.

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