Growth of 6.5 percent would mark a ripping pace for most countries but would still be the slowest in China in a quarter century as world’s No. 2 economy grapples with gyrating financial markets, softening global trade and efforts to reduce environmental degradation.
“Our country’s development faces more and greater difficulties, and severer challenges this year, so we must be prepared for a tough battle,” Li said ahead of the country’s annual meeting of parliament.
In 2016, Beijing will aim for an economic growth rate between 6.5-7 percent, as Reuters previously reported, with a consumer inflation target of around 3 percent and money supply expansion of around 13 percent, according to a series of draft reports distributed Saturday before the parliament opened.
Many had been hoping China would post an aggressive target for fiscal spending to prop growth. But the draft goal of running a fiscal deficit equivalent to 3 percent of GDP, while marking a rise from the previous year’s target of 2.3 percent, still disappointed some who had hoped for a number closer to 4.
“The budget deficit of 3 percent is not enough and should be increased,” economist and former central bank advisor Yu Yongding told Reuters on the sidelines of the meeting.
The reports provide a blueprint of China’s aspirations for the next five years, and show Beijing trying to strike a delicate balance between holding up growth and restructuring underperforming industries, which are major contributors to pollution and are responsible for much of the country’s corporate debt overhang.
Beijing aims to cap total energy consumption at 5 billion tonnes of standard coal by 2020 – the first time such a target had been set but disappointing to those who had expected a more aggressive target. It also set targets for improving water efficiency, another major environmental challenge for the country.
China will increase military spending by 7.6 percent this year, its lowest increase in six years, as the premier vowed to push on with a modernization plan that will shrink staffing.
SLOWER BUT BETTER?
Weighed down by sluggish demand at home and abroad, industrial overcapacity and faltering investment, China’s economic growth slowed to 6.9 percent in 2015. Economists widely expect it to cool further to around 6.5 percent this year.
That is seen as a healthy adjustment by many economists, as previous white-hot growth rates have been blamed for inflating asset bubbles, hobbling the financial system and distracting firms from investing in upgrading their competitiveness.
But slower growth raises the specter of social unrest, as the transformation from low-end manufacturing to high technology and services would naturally lead to rising structural unemployment. At the same time the real estate market has shown signs of becoming unbalanced again, with price surges in top tier markets standing in stark contrast to sliding prices in smaller cities.
In the week leading up to parliament, the government flagged major job losses in the key production industries of coal and steel as policymakers seek to eliminate inefficiencies and overcapacity in state-owned enterprises through consolidation and layoffs.
China aims to lay off 5-6 million state workers over the next two to three years, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades.
Li said the country will create 10 million new jobs and hold the urban registered unemployment rate below 4.5 percent in 2016 while dedicating funds to retraining laid off and low-skill workers.
Beijing hopes the country’s financial markets can play a stronger role in supporting the transformation.
“We will move forward with the reform of stock and bond markets and increase the level of rule of law in their development, promote the sound development of the multilevel capital market, and ensure that the proportion of direct financing is increased,” Li said.
The reassurance comes after Chinese markets erupted in 2015, with the stock indexes crashing and the yuan sliding sharply against the dollar.
Both moves prompted heavy-handed intervention from the government both onshore and in offshore markets, leading some to question whether the Chinese Communist Party was capable of following through on its commitment to let markets play a “decisive role” in setting the price of assets.
Li said China will open its capital account in an “orderly manner” and continue to improve the exchange rate regime in 2016.