Premier Li Keqiang delivered his first government work report at the opening of the National People’s Congress (NPC) meeting last night. The new government promises to speed up reform, manage debt risks, fight pollution, and yet maintain 7.5% economic growth all at the same time but as SocGen’sWei Yao warns, this is going to be nothing if not challenging. Maybe mindful of a potential miss, Yao points out that policymakers seem to give themselves a small degree of flexibility by using new phrases like “a reasonable range for the growth rate†and “the growth target is flexibleâ€. Mission intractable or mission impossible?
Via SocGen’s Wei Yao,
Premier Li sets himself a mission impossible
In the meantime, financial system risk continues to intensify as we expected. On the night before the NPC meeting, China’s bond market saw the first ever default, as a solar company failed to service its debt. One of the reasons given for keeping the same growth target is to maintain market confidence. However, judging from the lack of performance of China’s stock market today, investors may well be focusing more on debt risk just like us.
Targets: little flexibility
In the 2014 Government Work Report, the GDP growth target is set again at 7.5%, the same as in 2013. However, the growth targets for fixed asset investment, industrial production and foreign trade are all lowered by 0.5ppt to 17.5%, 9.5% and 7.5%, respectively. The hope is for household consumption to step up, as retail sales are expected to grow at an unchanged targeted pace of 14.5% despite a big miss (13.1%) last year.
Besides, there is no change to the stated policy stance: prudent monetary policy and proactive fiscal policy. Broad money is again targeted to grow 13% and fiscal deficit is budgeted to widen to CNY 1.35tn from CNY 1.2tn in value, which is however estimated by the government at 2.1% of GDP – the same as in 2013.
