Two Special Sessions: China Takes Cautious Approach to 2021 GDP Growth, Reduces Budget Deficit Target and Local Government Bond Quota

In this special round-up of China’s two-session annual parliamentary meeting, the central government sets a conservative annual growth target for the Chinese economy in 2021, signals a slight tightening of fiscal and monetary policies, and plans to expand regulatory oversight of the FinTech sector. .

China kicked off its one-week “Two Sessions” annual parliamentary meeting Thursday. Prime Minister Li Keqiang delivered the government’s activity report to the 13th National People’s Congress (NPC) for deliberation on Friday morning.

In the report, China set an annual economic growth target of “above 6%” for 2021 – a number seen as a defensive target by economists and analysts.

The Chinese economy grew by 2.3% year-on-year in 2020, although no digital target has been defined last year after the outbreak of the Covid-19 pandemic.

The new 2021 target is “close at hand” due to a weak base in 2020, and growth could be 9.2%, said Kevin Xie, senior economist for Asia at the Commonwealth Bank of Australia, in a Friday afternoon note.

An annual rate of around 6% for economic growth would be “quite low,” a BNY Mellon Investment Management research note said Friday before the official figure was announced. Aninda Mitra, senior sovereign analyst at the firm, forecasts GDP growth of 8.4% this year and inflation of around 1.6%.

Liu Ligang, chief economist for China at Citi Research, expected the target to be 7% or more in a note earlier this week.


The growth target for the consumer price index – an indicator of inflation – is 3%, higher than the 2.5% recorded last year.

Citi’s Liu said earlier this week that the CPI inflation cap could be lowered to 3% from last year’s target of 3.5%.


Beijing aims to create 11 million new jobs and an unemployment rate of around 5.5% by the end of 2021. The urban unemployment rate surveyed was 5.2% at the end of 2020. Last year, 11, 86 million new jobs were created, against the target of 9m.


The government plans to reduce its budget deficit for 2021 to 3.2% of GDP, from a previous target of over 3.6%. It will no longer issue special treasury bills to fight the pandemic, after Rmb1tr of this show Last year.

This year’s quota for local government bonds has been lowered to 3.65 tr Rmb from 3.75 tr Rmb last year. The official figure defied some market rumors of a 20% drop in quota. The emission limit for local authorities was set at 2.15 tr Rmb in 2019.

“The announced fiscal policy targets involve a modest rather than a brutal tightening,” said ABC’s Xie, noting that the 3.2 percent lower budget deficit is still the second highest in recent years, and the new quota of local government bonds is much higher than what was allocated in 2019.


Li said Beijing will continue to improve and implement tax cuts to “lend a hand” to “restore vitality” to the Chinese market.

Other support measures have been announced for small businesses and individuals. To encourage innovation, companies will continue to benefit from an additional 75% tax deduction on their research and development expenses.


China will keep its “prudent” monetary policy focused, flexible and appropriate. This year’s money supply and total social finance growth are expected to be broadly in line with nominal GDP growth, “reasonably abundant” liquidity, stable macroeconomic leverage ratio, and “mostly stable” renminbi exchange rate. according to the government’s activity report.


Beijing is also aiming to further help small and micro businesses raise funds. This will allow these companies to continue to defer payment of principal and interest on loans, while increasing support through the central bank’s on-lending and rediscounting program.

Big commercial banks have been asked to give at least 30% more lending to small businesses this year, having already increased their lending by 50% year-on-year in 2020.

China is pushing its financial system to continue to cap profit growth in order to further support the real economy and lower the cost of borrowing. Financial institutions have been tasked with give up Rmb1.5tr of profit Last year.


China’s opening-up policies will be implemented “with a broader scope, in broader fields and at a deeper level” this year, Li said. The government has pledged a stable development of international trade, shorten the negative list of foreign investment, gradually open up the service sector and publish the negative list for cross-border trade in services.

China will ensure fair competition between domestic and foreign enterprises, protect the legitimate rights of foreign enterprises, and welcome more foreign investment.


The government has said it will deepen national reforms, including in state-owned enterprises. It will intensify anti-monopoly work and prevent the “unruly expansion” of capital and unfair competition.

Chinese regulators plan to continue to help recapitalize small banks and strengthen their corporate governance. They will also steadily advance the implementation of a registration-based system for national fundraising, improve the onshore write-off mechanism as well as the bond market infrastructure, and create more funding opportunities for investors. Chinese institutions.


Beijing will also strengthen regulatory oversight of financial holding companies and fintech, and ensure that financial innovation is subject to prudent oversight. Systemic risks in the financial sector should be avoided, according to the government’s activity report.


The government’s activity report referred to initiatives such as “the Belt and Road” and bilateral, multilateral and regional economic cooperation. These include the signing of the Comprehensive Agreement on Investment between China and the European Union and the negotiations of the China-Japan-South Korea Free Trade Agreement. Beijing is also is actively considering joining Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Li said China is willing to develop Sino-US relations around economy and trade on the basis of “mutual respect.” But he cautioned against foreign involvement in matters relating to Taiwan and the special administrative regions of Hong Kong and Macao.


The country further focused on sustainable development and green transformation on land. China is committed to “vigorously developing” new sources of energy, including nuclear power, and has set a target that 70% of heating in northern China comes from clean energy.

The government will work around its goal of achieving “carbon neutrality” by 2060, including forming a work plan for the country to peak carbon dioxide emissions by 2030. It will propose policies to increase financial support for green and low-carbon development. .

As part of the 14th Five-Year Plan, which will also be deliberated by the AFN, China will explore the development of the ocean economy.

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