China sets growth target of more than 6% in 2021

 China sets growth target of more than 6% in 2021

 China sets growth target of more than 6% in 2021

Hong Kong (CNN Business) China overcame the global recession in 2020, thereby narrowing the economic gap with the United States. Now she says she needs to speed up her pace this year.

Chinese Premier Li Keqiang announced Friday that China will target growth of more than 6% in 2021.

While China emerged from the global recession caused by the coronavirus epidemic on a more emphatic basis than any other major economy, it continues to grow by only 2.3% in 2020.

The new goal is more than China needs to achieve to get back on track with President Xi Jinping's long-term goal of the economy. To reach Xi's plans to double GDP by 2035, China will need to grow just under 5% this year, with similar growth over the next decade or so.

But it is also still less than some observers would have liked to see for the world's second largest economy.

Iris Pang, chief economist of Greater China at ING, wrote: "China unexpectedly set a target for GDP growth, but at a relatively low level." "I am concerned that the low GDP target may indicate that the government may develop a scenario for The Return of Covid."

Li made the remarks at the Chinese "Two Sessions" meeting, the country's largest political gathering this year. Before that, there was a heated debate in the country about whether the GDP target should be re-targeted, which it abandoned last year for the first time in decades with the spread of the CORONA virus.

"When this goal is set, we have taken into account the recovery of economic activity," Lee said Friday, adding that the goal "will help maintain healthy economic growth."

Some experts -- including Yang Weimin, former secretary-general of the National Development and Reform Commission -- have encouraged such guidance, saying China needs to set standards to maintain its pace of growth.

But others have been cautious about re-establishing GDP targets so far. Ma Jun, policy maker at the People's Bank of China, said earlier this year that highly ambitious targets could encourage local governments to borrow too much, increasing the risk of accumulating "hidden" debt.

Balanced recovery

China spent hundreds of billions of dollars last year on programs to stimulate economic activity, including major infrastructure projects and cash grants to its citizens.

This amount of spending does not move to 2021.

He told me on Friday that China has set a budget deficit for the year at about 3.2%, slightly lower than last year's deficit, "in light of the effective containment of Covid-19 and gradual economic recovery."

Lee also reduced the amount of money local governments will be able to issue in private bonds this year by about 100 billion yuan ($15 billion) -- although they still amount to about 3.65 trillion yuan ($564 billion). These funds are mainly used to finance infrastructure projects, such as 5G networks, airports, railways and charging stations.

He also said that the country will no longer issue private Treasury bonds this year. The government issued about $155 billion worth of these bonds in 2020 to finance medical equipment and technology used to fight the virus.

Like other countries, China needs to figure out how to balance the need for at least some additional stimulus as recovery continues with the growing debt burden.

After all, last year's growth rate was still the slowest in China in decades. There are some weaknesses in the economy: retail sales have been delayed, for example, suggesting that people are still wary of spending money as the country struggles to eliminate the Covid-19 outbreak altogether.

The ambitious vaccine program is part of the equation, as China tries to vaccinate the 1.4 billion people living there. So far, only about 3.5% of the population has been vaccinated, although planning to reach 40% by the end of June.

Lee reiterated that the government would maintain "necessary support" for the economy and "avoid sharp turns" in politics as it tried to balance the recovery.

Analysts in Nomura said Friday that the new economic growth target could be interpreted as "very conservative."

"From our point of view, Beijing is fully aware that GDP growth may exceed 8% this year," they wrote in a research note, adding that the government "may be reluctant" to set a standard of this high "due to the varying effects between the provinces. And the cities of the Coved-19 pandemic."

Other challenges

There are other areas that Beijing should be watching this year as well.

Earlier this week, Guo Shuqing, chairman of the Communist Party of the Central Bank, told reporters that the country's real estate sector may be in a bubble, adding that the trend of speculation is "dangerous." Regulators have already issued rules aimed at reducing lending to the sector, and Guo's comments suggest that there may be more emphasis on credit.

Guo also warned that bad loans may continue to pose risks to the financial system, which could slow the pace of recovery.

A large number of state-owned companies declared bankruptcy or defaulted on loans last year -- a worrying trend for a sector xi wanted to promote as a major driver of economic activity and innovation. Defaults by state-owned companies jumped 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 as well.

On Friday, Lee stressed the importance of job stability, adding that the country would "increase jobs" wherever possible. Unemployment remains a major concern for Beijing, and the country has pledged to create at least 11 million new jobs in urban areas this year.

While the country's urban unemployment rate remains at 5.6%, some analysts believe the full picture may be much higher.

"The risk to the Chinese economy [in 2021] is a slowdown in consumption," Yao Yang, director of the China Center for Economic Research at Peking University of China, said in a video posted on a Tencent media site in December. He said china's total unemployment rate could approach 20%, which is much higher than the government unemployment rate in cities.

The state is also trying to boost its economy as it works to achieve other priorities, including a desire to get rid of its dependence on the United States in key technology - although some of its efforts have been hampered by U.S. restrictions on Chinese companies, such as semiconductor manufacturing. An international company.

Lee said Friday that the government will focus on innovation by spending more money on research and development.

Lee said the country is trying to reduce emissions and intends to "strengthen comprehensive measures and joint efforts to prevent and control air pollution."

Becoming carbon neutral by 2060 is one of China's great est priorities - a noble goal, bearing in mind that China uses more coal than the rest of the world combined.