China Reveals Lower Economic Growth Targets for 2019
On Tuesday, Mar. 5, 2019, China’s Premier Li Keqiang delivered a lower overall growth target for the upcoming year in his “Government Work Report” to the National People’s Congress (NPC), the nearly 3,000-member strong legislature (on paper) of the People’s Republic of China. The report comes during the annual parliamentary pageantry that is a meeting of the full NPC, with delegates loyally approving legislation, reports, and budgets as a de facto rubber stamping body and evidence of President Xi Jinping’s firm grip over Communist Party of China (CPC) and the Chinese state in the 70th anniversary year of the establishment of the People’s Republic of China.
Premier Li enunciated an “aim for economic growth in 2019 to be a range of six to 6.5 percent,” a range more loosely defined and, most importantly, lower than the hard target of 6.5 percent annual gross domestic product (GDP) growth seen in the past two years. The choice reflects Beijing’s attempt to steer the economy out of years of debt-fuelled growth as China buckles under the effects of the ongoing trade war with the United States, rising corporate defaults, and continuous funding of failing enterprises by the state. Last year, China’s GDP grew only by 6.6 percent, the slowest annual growth pace since 1990.
Li’s speech to the NPC did not offer many specifics on how the incumbent administration would go about achieving the new lower growth target, irking domestic and foreign critics while underscoring the mounting economic anxieties that have come to dominate the political conversation this past year. His report, which warned of a “tough economic battle ahead,” also included a pledge to increase private sector lending while avoiding an increase in public debt, which is currently approaching 300 percent of GDP.
Beijing will undertake various efforts to target private sector enterprises by instituting a series of “aggressive” tax cuts worth nearly 2 trillion yuan (298 billion USD) for 2019. A further three percent tax cut for manufacturing companies, Li asserted, would also “considerably reduce production costs,” a move that sends a clear message from the government that improving enterprises’ prospects for future growth would subsequently encourage them to invest more into the economy.
As covered in Chinese state-run paper China Daily, Premier Li’s report also highlighted the need to “recalibrate China’s economy” and empower the state to deal with the lingering ramifications of “sudden prosperity,” including stricter environmental regulation, reforming the Chinese healthcare system, and expanding the “scope of education to include more innovative approaches that would build the technology systems that China will need to advance in the future.”
China’s new growth target of six to 6.5 percent for 2019 does not come as much of a surprise to many economists. Sources interviewed by Reuters prior to the session predicted a similar target range for 2019 while economists surveyed by Bloomberg also foresaw output growth for 2019 to slow to 6.2 percent — compared to the 6.6 percent seen last year — and continuing to ease further into 2020 and 2021.
“Beijing is becoming increasingly worried as the growth slowdown rapidly worsens,” Ting Lu, chief China economist at Nomura in Hong Kong said in a note in January 2019. “Chinese banks are under pressure to ramp up lending to support Beijing’s call to support growth.”
However, the economic slowdown is projected to intensify. According to the Bank for International Settlements, China’s total household debt amounted to $6.58 trillion at the end of June 2018, roughly 50.3 percent of GDP — a precipitous rise of over 30 percent when compared to the figure of 18.6 percent a decade ago. Additionally, the unresolved US-China trade conflict has also damaged consumer confidence, with a potential global recession only further dragging down a slowing Chinese economy. As a potential reaction to apparently weakening consumer willingness to spend, on Jan. 15, 2019, the People’s Bank of China injected 570 billion yuan (84 billion USD) into the economy in an effort to bolster economic growth, although many analysts saw it as a measure to temporarily meet the demands of the surge in cash demand in lieu of Chinese New Year season.
Although this year’s projected growth rates are largely attributed to China’s slowing economy, there is still substantial debate regarding which forces have contributed the most to this change in China’s economic track record. Some experts believe that the slowing growth is attributed to tumultuous demographic changes, the ending of urbanization, and the “maturing” of China’s economy as it becomes more developed; others blame the CPC’s structural inability to bolster economic growth.
However, the incumbent administration has continued to signal its commitment to increase economic growth. Calling the projected targets “ambitious but realistic,” Premier Li reported to the NPC that China “will face a graver and more complicated environment as well as risks and challenges, foreseeable and otherwise, that are greater in number and size… We must be fully prepared for a tough struggle.”