China Plans Around 5% Growth Goal, Higher Deficit, Reuters Says
China Plans Around 5% Growth Goal, Higher Deficit, Reuters Says ·Bloomberg
Bloomberg News
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(Bloomberg) -- Chinese leaders plan to set an annual growth goal of about 5% for next year and raise the budget deficit to 4% of gross domestic product, Reuters reported, citing two people it didn’t identify.
The report comes days after top leaders including President Xi Jinping wrapped a yearly economic conference in Beijing, where they were expected to set goals for 2025. Specific targets will only be officially announced at a parliamentary huddle in March, if the leadership sticks to precedent.
The new growth goal would match this year’s target, which officials are on track to hit after unleashing a slew of stimulus since September including rate cuts and more cash for banks. Both targets are largely in line with economists’ expectations, after policymakers stepped up pledges to increase government spending and economic policy support.
Markets shrugged off the news, with the yuan little changed at around 7.29 per dollar in both onshore and overseas trading. The yield on 10-year bonds hovered near a record low, while China’s CSI 300 equity benchmark moved in a narrow range, largely maintaining the small gain it had notched before the lunch break.
The State Council Information Office didn’t immediately respond to a faxed request for comment on the Reuters report.
Policymakers last week pledged to “maintain stable economic growth” and prioritize boosting domestic consumption and investment at the economic work conference. Days earlier, the 24-man Politburo vowed to adopt a “moderately loose” monetary policy — the first shift in stance in about 14 years. Vows for “more proactive” fiscal tools stoked expectations for a budget expansion.
That shift came as the world’s No. 2 economy braces for a possible trade war with the US when Donald Trump takes office in January. Higher American tariffs on Chinese goods would reduce exports’ ability to power growth, after they contributed to nearly a quarter of economic expansion so far this year.
A larger fiscal deficit means the government will borrow more to fund increased public expenditure, which could help boost domestic demand as companies and households reduce spending and investment.
A 4% headline budget deficit would be the widest since a major tax reform in 1994, and mark a break with Chinese policymakers’ tradition of capping it at 3%. It would indicate a bolder mindset when it comes to fiscal stimulus, but the size of expansion — only 1 percentage point of GDP from this year — will likely be too modest to fill a widening gap in domestic demand and reverse persisting deflation.
Raising the deficit would represent just part of the government’s fiscal firepower. Top officials have also promised to issue more special treasury bonds and local government special bonds to spur growth. The two types of notes are not counted toward the official deficit, but have been an important source of funding for infrastructure investment. They’re increasingly being used in other areas such as subsidizing consumer purchase.
“It is possible that Beijing can issue more bonds beyond what this 4% deficit implies, if the looming trade war hurts China’s economy significantly,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
China in 2023 made a rare mid-year revision to the budget and lifted the headline deficit ratio to 3.8%, signaling that a sharp slowdown in growth wouldn’t be tolerated.
The overall increase in fiscal stimulus — including higher headline deficit and the special bonds — next year could be equivalent to about 2% of gross domestic product, according to forecasts by UBS Group AG and BNP Paribas SA.
That’s an improvement for China, which has traditionally adopted a conservative fiscal policy. But it would be dwarfed by other major economies such as the US, which raised budget deficit by more than 13% of its GDP in the span of one year in response to the initial Covid pandemic.
In a sign that Beijing is ready to embrace more government borrowing, the official Xinhua News Agency on Monday reported that China’s government debt level is relatively low compared to other countries and held mostly domestically. The report cited an unnamed official from the Central Financial and Economic Affairs Commission, a top economic decision-making body.
The Chinese economy remained unbalanced in November, with retail sales growth unexpectedly slowing while industrial production held up. Consumer confidence is still weak due to a years-long downturn in the property market, and the labor market remains sluggish.
Chinese Premier Li Qiang on Monday urged officials to swiftly carry out key economic tasks for the coming year, saying that ministries must be proactive and act “as early as possible” in executing plans set out at the economic work conference last week.
A gloomy wage outlook fueled widespread debate on social media on Tuesday, with users expressing dismay over salaries they said have fallen back to levels seen a decade ago under the topic “era of 3,500 yuan ($480) a month.”
The discussion trended on Weibo before the platform removed it as a hot topic to prevent it from spreading more widely. It was triggered by a blogger who shared examples of highly-educated young people failing to find jobs with decent pay in a video, which spurred others to share their struggle in the job market.
“It’s the same for the civil engineering industry. I earned 4,500 yuan when I graduated 12 years ago, and my company is paying fresh graduates they hired this year the same,” one person wrote. “But living costs and especially home prices are not the same with 12 years ago.”
A commentary in the Communist Party mouthpiece People’s Daily on Tuesday said economic goals play a strong guiding role. “Maintaining a certain level of economic growth is crucial to resolving various contradictions and problems in development,” according to the article.
--With assistance from Tian Chen and Abhishek Vishnoi.
