China sets ‘low bar’ for GDP growth, pledges more jobs

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By Stella Qiu and Kevin Yao

BEIJING (Reuters) – China on Friday set a modest annual economic growth target of over 6% and pledged to create more jobs in cities than last year as the world’s second largest economy planned a cautious course for a year that disrupted by became COVID-19.

In 2020, China removed a gross domestic product growth target from the prime minister’s work report for the first time since 2002 after the pandemic devastated its economy. China’s GDP rose 2.3% last year, the weakest in 44 years, but it is the only major economy growing.

“As a general target, China’s growth rate for this year has been set at over 6%,” said Prime Minister Li Keqiang in his 2021 Work Report. “In setting this target, we took into account the recovery in economic activity.”

However, the target for 2021 was well below the consensus of analysts who expect growth could exceed 8% this year. Chinese stocks fell.

China’s conservative growth target reflects public efforts to return to economic stability after last year’s COVID-19 upheaval, policy advisers said, while keeping appetites for debt and risk under control.

“It is obvious that growth will be above 6% this year. The goal is to tell people that we should focus on higher quality growth,” Yao Jingyuan, advisor to the Chinese cabinet, told Reuters .

While the low GDP target doesn’t mean the government will rush to tighten policies as many parts of the economy are still in trouble, it will give planners more room to push reforms.

Premier Li pledged to promote domestic consumption and innovation to reduce reliance on overseas markets and technology for long-term development.

Because of this, China plans to increase annual research and development spending by more than 7% each year through 2025.

“The goal should be an end result. We should have more room to push difficult reforms,” ​​said Xu Hongcai, deputy director of the economic policy commission of the China Association of Policy Science.

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In 2021, China will aim to create more than 11 million new urban jobs, Li said in his report presented at the opening of this year’s parliamentary session, up from last year’s target of over 9 million and in line with recent years.

“Pretty hard”

The government is aiming for a budget deficit of around 3.2% of GDP in 2021, less than a target of over 3.6% last year, but leaves room for infrastructure funding and small business support.

Iris Pang, chief economist for Greater China at ING, said the continued fiscal space is a more telling target than the growth target.

“The very low GDP growth target is like there is no target at all as the consensus is 8% and my forecast is 7%,” Pang told Reuters.

“I believe that most of the money is spent on technological research and development and continues to provide a buffer for job stability in case COVID makes a comeback,” she added.

The municipal government’s special bond issuance quota was set at 3.65 trillion yuan ($ 563.65 billion), up from 3.75 trillion yuan in the previous year.

China also has no plans to issue special government bonds this year, having first issued those bonds in 2020 in support of the economy.

The outlook for government revenue and spending this year is “pretty grave” given the modest availability of funds amid rising spending, China said in its annual budget report, also released on Friday.

The government has set its 2021 consumer price inflation target at around 3%. Consumer prices rose by 2.5% annually last year, falling below a target of around 3.5%.

In a five-year plan released separately on Friday, China left out any GDP growth target for 2021-2025 – as opposed to the 6.5% set for the 2016-2020 plan – but said it maintained its average annual growth over the year will be in a “reasonable” area for the next five years.

Annual growth in disposable income per capita over the next five years will be “in line with GDP growth” compared to a target for 2016-2020 of over 6.5% according to the plan.

There was also no target for job creation over the next five years, although the government said the urban unemployment rate will stay below 5.5%.

($ 1 = 6.4756 Chinese Yuan)

(Reporting by Kevin Yao, Judy Hua, Stella Qiu, Gabriel Crossley, Cheng Leng, Lusha Zhang and Tony Munroe; writing by Ryan Woo; editing by Jacqueline Wong and Sam Holmes)