BEIJING – China plans to set a lower economic growth target of around 6% in 2020 from this year’s 6-6.5%, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said.
Chinese leaders are trying to support growth to limit job losses that could affect social stability, but are facing pressure to tackle debt risks caused by pump-priming policies.
The proposed target, to be unveiled at China’s annual parliamentary session in early March 2020, was endorsed by top leaders at the annual closed-door Central Economic Work Conference this month, according to three sources with knowledge of the meeting’s outcome.
“We aim to keep next year’s growth within a reasonable range, or around 6%,” said a source who requested anonymity.
Top leaders pledged to keep economic policies stable while making them more effective to achieve growth targets in 2020, state media said on Thursday.
Next year will be crucial for the ruling Communist Party to fulfill its goal of doubling gross domestic product (GDP) and incomes in the decade to 2020.
Economic growth of nearly 6% next year could be enough to meet that goal given the economy is expected to expand about 6.2% this year, policy insiders said.
Officials at the National Development and Reform Commission and the Ministry of Finance were not immediately available for comment on Saturday.
The government aims to boost infrastructure investment by allowing local governments to issue more special bonds next year, but there is less room for tax cuts, the sources said.
The annual budget deficit could rise from this year’s 2.8% of GDP, but is likely to be kept within 3%, they said.
Local governments could be allowed to issue special bonds worth some 3 trillion yuan ($426.20 billion) in 2020 to fund infrastructure projects, including 1 trillion yuan front-loaded to this year, they said.
“Fiscal policy will provide a key support for the economy,” said one source.
The central bank is likely to ease policy further to encourage lending and lower corporate funding costs, but it wants to avoid fanning property speculation and inflation expectations after consumer inflation hit a near eight-year high in November, the sources said.
Beijing has unveiled a raft of pro-growth measures this year, cutting taxes and fees and letting localities issue 2.15 trillion yuan in special bonds, alongside cuts in reserve requirements and lending rates to boost credit.
But top leaders have ruled out aggressive stimulus for fear of pushing up debt levels.
A trade deal with the United States could ease pressure on Chinese exporters, but more policy steps are needed to underpin weak demand at home and abroad, policy insiders said.
The United States and China cooled their trade war on Friday, announcing an agreement that reduces some U.S. tariffs in exchange for what U.S. officials said would be more Chinese purchases of American farm products and other goods.
Top leaders at the meeting listed preventing financial risks as a key priority for 2020 and called for keeping the debt-to-GDP ratio largely stable.
They also pledged to prepare “contingency plans” to cope with growing global volatility and risks.
But any sharper slowdown could put more pressure on small firms, which could in turn hit smaller banks – the most vulnerable part of the banking sector, policy insiders said.
Private companies have defaulted on bond payments at a record rate this year, while capital investment has slowed. A rare state seizure of a regional bank earlier this year and state rescues of lenders have also sharpened concerns about the health of small banks.
“Small firms will continue to face big pressure next year, and that could affect the financial sector,” said one insider.
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