Tuesday, June 2, 2020

China drops annual GDP target for the first time

International Business

BEIJING: China dropped its annual growth target for the first time yesterday and pledged more government spending as the Covid-19 pandemic hammers the world’s second-biggest economy, setting a sombre tone to this year’s meeting of parliament.

The omission from Premier Li Keqiang’s work report marks the first time China has not set a target for gross domestic product (GDP) since the government began publishing such goals in 1990.

The economy shrank 6.8 per cent in the first quarter, the first contraction in decades, hit by the outbreak of coronavirus, which started in the central Chinese city of Wuhan.

“We have not set a specific target for economic growth for the year, mainly because the global epidemic situation and economic and trade situation are very uncertain, and China’s development is facing some unpredictable factors,” Li said at the start of parliament.

Domestic consumption, investment and exports are falling, and the pressure on employment is rising significantly, while financial risks are mounting, he warned.

China has set a target to create more than nine million urban jobs this year, according to Li’s report, down from a goal of at least 11m in 2019 and the lowest since 2013.

Ahead of the National People’s Congress, the week-long meeting of the largely rubber-stamp parliament, China’s top leaders have promised to boost stimulus to bolster the economy amid rising worries job losses could threaten social stability.

China is targeting a 2020 budget deficit of at least 3.6pc of GDP, above last year’s 2.8pc, and fixed the quota on local-government special bond issuance at 3.75 trillion yuan ($527 billion), up from 2.15trn yuan, according to Li.

The government will issue 1trn yuan in special treasury bonds this year, the first such issuance. It will transfer 2trn yuan raised from the bigger 2020 budget deficit and special anti-coronavirus treasury bonds to local governments, Li said.

Local government bonds could be used to fund infrastructure projects, while special treasury bonds could be used to support firms and regions hit by the outbreak. The fiscal stimulus in Li’s report is equivalent to about 4.1pc of China’s GDP, according to Reuters calculations based on the fiscal measures announced.

“The annual budget points to fiscal stimulus this year at least on par with that following the global financial crisis,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note.