China promises stimulus spending, sets no growth target

Daniel Fowler
May 22, 2020

The omission from Premier Li Keqiang's work report marks the first time China has not set a target for gross domestic product (GDP) since the government began publishing such goals in 1990.

Beijing has set this year's special local government bond quota at 3.75 trillion yuan, up significantly from 2019's 2.15 trillion yuan.

Li said the ruling Communist Party set no growth target, usually a closely watched feature of government plans, due to the "great uncertainty" of the epidemic.

The budget will be set at 1.268 trillion yuan ($178 billion) for the year - the second-biggest in the world after the United States - continuing a downward trend in military spending and lower than last year's increase of 7.5 percent.

US-listed Chinese companies have come under increasing scrutiny in recent weeks after Luckin Coffee revealed that an internal investigation found hundreds of millions of dollars of its sales a year ago were "fabricated".

It is the first time in recent years that officials have decided not to issue a numerical growth target, which is typically seen as a signal of the resources leaders are willing to spend to shore up the economy. GDP grew 6.1%, its slowest pace in almost 30 years.

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The coronavirus has also dealt the economy a heavy blow, after the government instituted lockdowns to curb the spread of the virus - China's GDP contracted 6.8 per cent in the first quarter of this year, the worst on record. Local governments have also issued 1.2 trillion yuan ($169bn) in special bonds in the first four months, according to the finance ministry.

This year's spending will expand China's navy and acquire advanced aircraft and other weapons to help Beijing enforce its territorial claims in the South China Sea and expand its military presence in the Western Pacific and Indian Ocean.

Li's report did not offer "anything too out of the ordinary", said Nie Wen, economist at Shanghai-based Hwabao Trust, "reinforcing views that China would not resort to mass stimulus that some market players have been betting on".

Louis Kuijs of Oxford Economics in Hong Kong said Beijing worries about excessive debt and financial instability but that Li's "sizeable overall fiscal-deficit target indicates significant policy support for the domestic recovery that we expect to continue despite the challenging external background".

The central bank has cut the Loan Prime Rate (LPR) by 46 basis points since August 2019, when it replaced the previous benchmark lending rate. The one-year LPR rate is now 3.85%.

Corporate income tax payments by micro and small businesses will also be postponed until 2021, as part of a series of measures Li said would result in saving 2.5 trillion yuan for enterprises this year.

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