World Economy

Facing Economic Challenges, China Trims 2017 GDP Target

Li says China’s “systemic risks are under control. But we must be fully alert to the buildup of risks”
Premier Li Keqiang delivers his work report during the opening session of the National People’s Congress on March 5.Premier Li Keqiang delivers his work report during the opening session of the National People’s Congress on March 5.

Chinese Premier Li Keqiang warned Sunday the world's second-largest economy faces severe challenges, signaling a further deceleration as he announced a trimmed 2017 GDP growth target of "around 6.5%."

The economy is already growing at its slowest rate in more than a quarter of a century and the latest target unveiled at the opening of China's parliament is lower than a 6.5-7% range he set last year, AFP reported.

Full-year growth in 2016 came in at 6.7%, the weakest since 1990. "In the past year, China's development has faced grave challenges posed by a great many problems and interwoven risks and dangers both at home and abroad," Li said in his annual state-of-the-nation speech to the National People's Congress.

China aims for "GDP growth of around 6.5%, or higher if possible," he said, despite even "more complicated and graver situations" this year. The target is below expectations and indicates authorities will prioritize risk-control over short-term growth.

The NPC gathers thousands of delegates from across China to Beijing's vast Great Hall of the People and is touted by the ruling Communist Party as proof that it answers to the people despite its monopoly on power.

China is trying to pivot from hyper-fast growth based on investment, heavily-polluting industries, and exports towards a steadier consumer-driven model. But the transition is complicated by slowing growth, a slumping currency, bloated industrial firms, capital flight abroad, and fears of a looming housing bubble and bad-loan crisis.

China's "systemic risks are under control. But we must be fully alert to the buildup of risks," Li said. "We will ensure order in the financial sector and build a firewall against financial risks".

Maintain Liquidity

Economists say it is a delicate balancing act to support growth and maintain liquidity while pursuing reforms and taming unruly financial forces.

The 2017 target for broad money supply growth was cut slightly to around 12% from about 13% for 2016. The government's budget deficit target was kept unchanged at 3% of GDP.

Li said China would continue to implement a proactive fiscal policy, adding that government aimed to cut companies' tax burden by about 350 billion yuan ($51 billion) this year.

China will also maintain a prudent and neutral monetary policy, he said.

Beijing has flagged in recent months a gradual shift away from a loose monetary stance to discourage speculative investments. Since February, the central bank has raised by tiny increments the interest rates on some lending facilities.

Optimistic Target

The premier's lengthy address touched on a broad range of other key national issues and included a pledge to maintain the stability of the yuan currency and cut severe air pollution.

The drive to reform bloated industries and reduce pollution will include cutting steel production capacity by 50 million metric tons and coal by 150 million metric tons, Li said.

Li said China would "resolutely oppose" any moves towards Taiwan independence.

US President Donald Trump had riled Beijing by signaling support for Taiwan—which Beijing claims as its own—and opposition to the expanding Chinese presence in the South China Sea, though the US rhetoric has softened lately.

China watchers will be looking during the 10-day NPC session for clues on President Xi Jinping's political ambitions ahead of this autumn's pivotal Communist Party Congress, an event held every five years and which has far greater bearing on politics than the NPC.

Jean-Pierre Cabestan, a professor at Baptist University of Hong Kong, said the 6.5% growth target "sounds rather optimistic". "But the economic risks won't prevent Xi Jinping from continuing to consolidate his power and put his own men in top positions," Cabestan said.

Authorities have shut down various industries to prevent the country's notorious smog from embarrassing delegates and, as every year, tightened security nationwide.

Li promised the government would "make our skies blue again" with pollution-reduction measures.

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