World Economy

China Lowers GDP Target to 6.5%

China Lowers GDP  Target to 6.5%China Lowers GDP  Target to 6.5%

China on Saturday lowered its growth target to 6.5% for this year as the world's second largest economy reeled under continued economic slowdown which last year slipped to below 7%, the lowest in 26 years.

China's economy, which grew 6.9% last year, was within "an appropriate range," Premier Li Keqiang said in his work report for this year submitted to the annual session of parliament, the National People’s Congress, which opened here on Saturday, news outlets reported.

Li said in a speech at the opening of the National People’s Congress parliament, attended by 3,000 delegates, that among the “main development targets” for the nation was “GDP growth 6.5% to 7%”.

The goal had been set at “about 7%” for 2015, but expansion came in at 6.9%, its lowest for a quarter of a century.

The downwards revision comes after factory output contracted in China during February.

China’s economy has slowed steadily as the ruling Communist Party tries to replace a model based on trade and investment with self-sustaining growth driven by domestic consumption.

China was also targeting consumer inflation of “around 3%” and unemployment “within 4.5%”, the text of Li’s speech, distributed among reports at the Great Hall of the People in Beijing, said.

"China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle," Li said.

Nothing Specific

It did not give a specific target for trade, which fell in 2015, only aiming for “a steady rise in import and export volumes” and “a basic balance in international payments”. It also pledged “further reductions in the release of major pollutants”.

“In setting a projected growth rate of between 6.5% and 7% we have taken into consideration the need to finish building a moderately prosperous society in all respects and the need to advance structural reform,” said the speech text. “It will also help guide market expectations and keep them stable.”

Li’s speech pledged that authorities would make much-needed cuts to overcapacity in the steel, coal, and “other industries facing difficulties”.

The country’s leaders have sought to reassure jittery global markets in recent weeks with a unified message that authorities still have monetary and fiscal policy tools in their arsenal to keep the economy from further slowdown.

The text of the speech projected a government deficit for 2016 of 2.18 trillion yuan ($275 billion), reaching a deficit-to-GDP ratio of 3%, which would be the highest since the founding of the People’s Republic in 1949.

10 Million Jobs

The government was also expected to create more than 10 million urban jobs this year, compared with 2015’s target of at least 10 million.

This year’s urban registered unemployment ratio was projected to top 4.5%, against the actual 4.05% reported by the Ministry of Human Resources and Social Security.

China is in a painful economic transformation, switching from an investment-led model to one that relies on domestic consumption, services and innovation. To achieve this goal, the country is actively slimming down its bloated state-owned enterprises, especially in the coal and steel sectors.

According to preliminary forecasts, the two sectors will see a combined laid-off workers totaling 1.8 million.

To cushion the effect of job losses on families and society, the central government will allocate 100 billion yuan ($15.4 billion) in two years to help laid-off workers find new jobs.

China’s fast growing service industry is expected to take the baton of job creation. The service sector accounted for 50.5% of the country’s gross domestic product last year, the first time it exceeded the 50% level.

Financial Market

Li also pledged to further reform the country’s financial market and liberalize interest rate. The National Development and Reform Commission said it expected fixed-asset investment to rise about 10.5% this year.

Non-financial foreign direct investment in China would reach $128 billion this year, it said, while non-financial outward direct investment was expected to increase 10% to $130 billion.