Premier Li Keqiang on Friday announced that China would target growth of more than 6% in the world’s second largest economy.
While China emerged from the global downturn caused by the coronavirus pandemic on surer footing than any other major economy, it still only grew 2.3% in 2020.
The new target is more than what China needs to accomplish to get back on track with President Xi Jinping’s long-term goal for the economy. To reach Xi’s plans to double GDP by 2035, China would need to grow a bit less than 5% this year, with similar growth through the next decade or so.
Li’s remarks came during China’s “Two Sessions” meeting, the country’s biggest political gathering of the year. Beforehand, there had been an intense debate in the country about whether to bring back a GDP target, which it abandoned last year for the first time in decades as the coronavirus took hold.
“In setting this target, we have taken into account the recovery of economic activity,” Li said on Friday, adding that the goal would “help sustain healthy economic growth.”
Some experts — including Yang Weimin, the former secretary-general of the National Development and Reform Commission — have encouraged such guidance, saying that China needs to set benchmarks to keep its growth on pace.
But others have been wary about bringing back GDP targets just yet. Ma Jun, a policymaker at the People’s Bank of China, said earlier this year that goals that are too ambitious could encourage local governments to borrow too much, heightening the risk of accumulating “hidden” debt.
A balanced recovery
China spent hundreds of billions of dollars last year on programs to stimulate economic activity, including major infrastructure projects and cash handouts for its citizens.
That amount of spending isn’t carrying over to 2021.
Li said Friday that China has set the deficit-to-GDP ratio for the year at about 3.2%, slightly lower than that of last year, “in view of the effective containment of Covid-19 and gradual economic recovery.”
Like other countries, China has to figure out how to balance a need for at least some additional stimulus as the recovery continues with a growing debt burden.
After all, the rate of growth last year was still China’s slowest in decades. And there are some points of weakness in the economy: Retail sales have lagged, for example, suggesting that people are still wary of spending money as the country struggles to stamp out Covid-19 outbreaks entirely.
An ambitious vaccine program is part of the equation, as China tries to inoculate the 1.4 billion people who live there. So far, it’s only vaccinated about 3.5% of the population, though plans to reach 40% by the end of June.
Chinese leaders had also earlier pledged that there will be no dramatic changes in economic policy this year.
In a statement published in December by the state-run Xinhua News Agency, top policymakers said that they would “maintain necessary support for the economy” and make “no U-turns in [economic] policy.”
“We are facing a paradox,” said Ma, the central bank policymaker, during an economic conference in January. “We need to shift our monetary policy, but it can’t be too quick.”
However, there are some areas where Beijing is likely to tighten its purse strings. Earlier this week, Guo Shuqing, the Communist Party boss at the central bank, told reporters that the country’s property sector might be in a bubble. Regulators have already issued rules meant to limit lending to the sector, and could announce more in the coming days and weeks.
Guo also warned that bad loans could continue to pose risks to the financial system, which could slow the pace of recovery.
A slew of major state-owned firms have declared bankruptcy or defaulted on loans in the past year — a concerning trend for a sector that Xi has wanted to bolster as a major driver of economic activity and innovation. Defaults by state firms surged to $15.5 billion in 2020, up 220% from the previous year, according to recent estimates by Jinan-based Zhongtai Securities.
China has other challenges, too.
The country is also trying to boost its economy as it works toward other priorities, including a desire to shed its reliance on the United States for key technology — though some of its efforts have been hampered by US restrictions on Chinese companies, such as Semiconductor Manufacturing International Corporation.
And it has yet to explain in detail its plans to become carbon neutral by 2060, a lofty goal considering China uses more coal than the rest of the world combined.
— Steven Jiang contributed to this report.
China bucked the global recession in 2020, and in doing so narrowed the economic gap with the United States. Now it says it needs to pick up the pace this year.