China targets GDP growth of 6.5% while moving to cut debt

China’s government is targeting growth of around 6.5 per cent this year, the same level as in 2017, while stepping up efforts to reduce debt and other risks to the financial system in the world’s second biggest economy.

"China's economy is transitioning from a phase of rapid growth to a stage of high-quality development," said Premier Li Keqiang as he delivered the Communist Party's annual work report to 2,970 delegates in the Great Hall of the People, opening the annual National People's Congress.

“Given our economic fundamentals and capacity for job creation, GDP growth of around 6.5 per cent will enable us to achieve relatively full employment,” said Mr Li.

During his address to the largely ceremonial parliament, Mr Li pledged to open up various sectors of the Chinese economy to foreign investment.

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However, while listening to the beating the free trade drum, overseas firms will feel they have been here before and won’t expect the rhetoric to lead to any meaningful levelling of the playing pitches for foreign companies.

Trade conflict

Battle lines are also being drawn for a trade conflict between China and the US, the world’s two biggest economies.

President Donald Trump aims to impose hefty tariffs on imported steel and aluminium to protect US producers, which could spark a tit-for-tat reaction from China.

Mr Li said he expected the global economy to continue to recover, but there were factors causing “instability and uncertainty”.

“The policy changes of the major economies and their spillover effects create uncertainty, protectionism is mounting, and geopolitical risks are on the ascent,” Mr Li said.

The 6.5 per cent growth target is below the 6.9 per cent level attained in 2017, the first time in seven years that the rate of expansion had increased.

The premier did not say the figure “could be higher” as he did in 2017, suggesting the Chinese economy is facing into headwinds, not least of which is an effort to quell the rise in corporate debt.

During the work report, Mr Li outlined a number of targets and forecasts, including retail sales growth of 10 per cent, consumer prices to rise up to 3 per cent, the creation of 11 million new urban jobs and maintaining the yuan exchange rate at a “stable rate”.

These figures tie in with the 6.3 per cent annual growth needed to support president Xi Jinping’s plans for a “moderately successful economy” by 2020. China plans to become a “strong power” on the world stage by the time the centenary of the 1949 revolution rolls around.

A slowing property market and tackling the worsening problem of pollution in the cities are also challenges for the Chinese government.

Curbing risk

China said it would step up efforts to curb financial risk, cutting its budget deficit target to 2.6 per cent. This is 0.4 of a percentage point lower than last year and the first time since 2012 it has targeted a reduction in fiscal deficit.

“We will improve the transmission mechanism of monetary policy, make better use of differentiated reserve ratio and credit policies, and encourage more funds to flow toward small and micro businesses, agriculture, rural areas, and rural residents, and poor areas, and to better serve the real economy,” Mr Li said in his report.

In the government’s 2018 budget report, defence spending saw its biggest increase in three years, up more than 8 per cent.