China Maintains Growth Target at 7.5 Percent; Focus Shifts to Reforms
March 5, 2014 3:11 PM EST
China announced on Wednesday it would maintain its economic growth target for 2014 at about 7.5 percent, as expected, signalling that its policy focus would be slanted in favour of reforms and rebalancing the economy.
Oil rig pumpjacks, or thirsty birds, extract crude from the Wilmington oil field where Tidelands Oil Production Company, owned by Occidental Petroleum, operates, near Long Beach, California, in July, 2013 (Reuters).
Premier Li Keqiang, in a report to the National People's Congress at the start of its annual session, also said the government would maintain an inflation target of around 3.5 percent for 2014. Broad M2 money supply growth would be kept at 13 percent, also widely expected.
"That should mean policymakers have enough room to ensure growth remains within a comfortable range while delivering the reforms," HSBC said in a note in the build up to the parliament session.
Li announced that authorities would set up a deposit insurance scheme, which analysts have described as a step toward China's declared goal of freeing up bank deposit rates.
He also said the government would push forward reform of the yuan exchange rate. Convertibility of the yuan on the capital account would be brought forward, Li said.
The government plans for a 15.3 trillion yuan budget in 2014, which would produce a deficit of about 2.1 percent of GDP, unchanged from the actual shortfall in 2013, the finance ministry said.
The country's top economic planning agency said in a report to parliament that the government will target 17.5 percent annual growth in fixed-asset investment and 14.5 percent in retail sales growth in 2014.
China's fixed-asset investment - a main growth driver - grew 19.6 percent in 2013, while retail sales rose 11.3 percent. The economy expanded 7.7 percent last year.
At a plenum meeting of the ruling Communist Party last November, China announced ambitious reforms that signalled the shift of the world's second-biggest economy from investment- and export-fuelled growth towards a slower, more balanced and sustained expansion.
Wednesday's announcements signal that it is well on track, but moving cautiously.
Some changes, such as government downsizing or closures of debt-laden factories in sectors gripped by overcapacity, are likely to take a back seat to avoid fuelling job losses and undermining social stability, analysts say.
Graphic:China economy/trade link.reuters.com/fut96s
Video: Corruption crackdown link.reuters.com/wuv37v
Policymakers are aware that an abrupt slowdown resulting from a rebalancing of the economy, and job losses and bankruptcies, could derail the reform agenda.
"Anyone hoping for a re-run of the excitement around last year's third plenum will be disappointed," Mark Williams and Qinwei Wang at Capital Economics in London wrote in a note.
"Nonetheless the congress should at least give us a better sense of the government's priorities and objectives for the rest of the year."
Li, China's first premier with an economics doctorate, has vowed to push painful changes "like a warrior cutting his wrist", but signs of fragility in the economy suggest reforms will be cautious and gradual.
During the parliament meeting, key government ministries and the central bank will hold a series of press briefings to cover a wide range of economic and social issues.
Li is scheduled to hold a news conference at the end of the parliament meeting on March 13.
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