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Economic Update

2021/03/08

China Sets 2021 GDP Growth Target above 6%

China is aiming for an economic growth rate of at least 6% in 2021, a goal unveiled by Premier Li Keqiang at the annual session of the National People's Congress in Beijing. The government also announced targets for consumer price inflation and budget deficit, which are respectively around 3% and 3.2% of GDP (Table 1).

Table 1:

 

2021

2020

GDP (%)

At least 6

N/A

Consumer Price Inflation (%)

Around 3

Around 3.5

Budget Deficit (% of GDP)

Around 3.2

Above 3.6

Local government special-purpose bonds (RMB trillion)

3.65

3.75

New Urban Jobs (millions)

11

9

Urban Unemployment Rate Cap (%)

5.5

6

 

Last year, for the first time since 1994, China scrapped its GDP growth target as the country faced major disruptions and economic uncertainties caused by the coronavirus pandemic. There had been speculation that the government would again abstain from setting a growth target this year, partly because previous exercises were seen as contributing to undesirable outcomes such as over-investment and inefficient allocation of resources.

However, as the Chinese economy continues to recover and exhibit strength, Beijing’s confidence in the return to normalcy has also increased. 

In fact, the world’s second-largest economy has proven to be more resilient than many had predicted when the pandemic first emerged. The Mainland was one of a handful of economies that have experienced success in halting the spread of the virus, and was the only major economy to earn the distinction of recording an expansion in 2020 (of 2.3%).

Its economic achievements notwithstanding, China continues to face challenges brought about and exacerbated by Covid. With disruptions to the supply of foreign goods – from agricultural commodities to processor chips – due to geopolitical tensions and the pandemic, China has made self-sufficiency a core objective of its latest Five-Year Plan.

A “dual circulation” model is being promoted as a national strategy to reduce the country’s dependence on overseas markets and technologies by spurring domestic demand and supporting homegrown technology and innovation. As a part of this approach, China aims to increase R&D spending by at least 7% annually through 2025.

While stimulus measures have helped shore up the Chinese economy since the onset of the pandemic, these have given rise to unwanted side effects such as a substantial increase in debt, effectively negating efforts by the Central Government in recent years to deleverage the economy.

With the economy now on a path to recovery, the Chinese Premier has declared that the government will strive to maintain stability with China’s overall leverage ratio for 2021. This prudent move to fend off systemic financial risks should be welcomed, even though the balancing act between supporting economic recovery and managing debt has become increasingly tricky.

 

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