What’s behind China’s decision to ditch GDP target this year? Analysts pointed out that the decision, by no means macro policy inaction, is more reflective of, and accommodates to, the uncertain situations brought about by the novel coronavirus. On the contrary, the Chinese government will enhance counter-cyclical regulations with ensuring employment and improving livelihood as the core. This year’s Government Work Report did not put forward specific targets for economic growth for the year. Analysts pointed out that the decision, by no means macro policy inaction, is more reflective of, and accommodates to, the uncertain situations brought about by the novel coronavirus. On the contrary, the Chinese government will enhance counter-cyclical regulations with ensuring employment and improving livelihood as the core. According to analysts, while epidemic prevention and control has achieved remarkable results, the impacts of the external environment for the Chinese economy are hard to be accurately predicted as the pandemic still plagues the rest of the world. In this case, setting relatively high growth targets does not conform to the law of the economy’s operation, which may lead to the distortion of economic structure; Setting lower growth targets will not only fail to stimulate local governments, but affect market expectations. “Based on the global development and pandemic control status quo, it is a rational, objective and better choice not to set a GDP target,” Liu Zhe, vice president of the Wanb Institute, told Jiemian News. While the Government Work Report has set no specific GDP target for 2020, maintaining steady economic growth remains the government’s focus this year, she said. " In terms of the measures to ensure growth, the approach only respects more the objective law of the economy’s operation and the trend of economic transformation. This people-centered, reform and opening-up-driven approach serves to stimulate the resilience and the potential of economic growth.” Tang Jianwei, chief researcher of the Financial Research Center at Bank of Communications, also told Jiemian News: “It is an important decision made by the government not to set a GDP target this year, by taking into account the changes in the internal and external environment. The decision reflects a sense of pragmatism and a fact-based spirit.” According to Tang, China’s economy faces great uncertainties, given the fait accompli of the negative growth registered in the first quarter, as well as the continued spread of the pandemic globally and the consequent economic tolls exerted. At this point of time, setting an annual growth target, especially pursuing a relatively higher goal, is likely to disturb the existing tasks of both promoting epidemic prevention and control and advancing economic and social development in a coordinated fashion. A lower target, meanwhile, could also be somewhat pointless in guiding development. Tao Jin, a researcher at Suning Institute of Finance, also agreed. “Not setting a GDP growth target does not mean no goals for employment or people’s livelihood. On the contrary, it precisely reflects that the government will invest more resources and energy in stabilizing employment, people’s livelihood, and winning the battle against poverty eradication. Once the specific economic and social development goals are achieved, the overall economic growth will naturally gain a rather stable footing.” In addition, Feng Xuming, a deputy director of the National Academy of Economics Strategy at the Chinese Academy of Social Sciences, said that not setting growth targets does not mean a lack of growth target in the economic plan. The 3.6% fiscal deficit implies a nominal GDP growth rate of 5.4%, and that translates into roughly 3.8% of real GDP growth, adjusted for inflation. This can be regarded as the benchmark forecast by economic planners for this year's economic growth, as well as an implicit growth target. “In fact, under the current situation, economic growth is still (and serves even more as) one of the core indicators characterizing macro-economic situations and mobilizing all parties,” Feng said. China’s gross domestic product (GDP) fell 6.8% in the first quarter this year, the lowest reading since the release of quarterly GDP figures in 1992, with the growth rates of investment, consumption and industrial added-value all posting double-digit declines. The government work report pointed out that there is no specific target for the annual economic growth rate for this year, mainly because the global epidemic situation and the economic and trade situation are very uncertain. China’s development faces some unpredictable factors. By doing so, it is conducive to guiding all parties to concentrate on ensuring stability on the “six fronts” (employment, finance, foreign trade, foreign investment, domestic investment, and expectations) and security in the “six areas” (job security, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and normal functioning of primary-level governments). The Government Work Report stated that this year the country must give priority to stabilizing employment and ensuring people’s livelihood, resolutely win the battle in eliminating poverty, and strive to achieve the goal of building a well-off society in an all-round way. The country aims to add more than 9 million new jobs in urban areas. The urban survey unemployment rate is expected to be about 6%, the urban registered unemployment rate is set at about 5.5% and the consumer prices rise is set to be about 3.5%. The country expects to have more stable and higher-quality imports and exports, and a basic equilibrium in the balance of payments. Residents’ income growth is expected to be basically in line with economic growth. Under the current standards, all rural impoverished people are expected to be lifted out of poverty, and all poverty-stricken counties are set to step out of poverty. Major financial risks should be effectively prevented and controlled. Energy consumption per unit of GDP and major pollutant emissions are expected to continue to decline. The country will strive to accomplish the goals and tasks planned for the 13th Five-Year period. “It should be noted that whether it is to maintain employment and livelihoods, achieve poverty alleviation goals, or prevent and mitigate risks, they all need the support from economic growth, so stable economic operation is the top priority. Reform and opening-up measures should be tapped to stabilize employment, protect people’s livelihood, promote consumption, drive up the market, stabilize growth so that there will be a new way to effectively deal with shocks and achieve a virtuous circle,” the Government Work Report said. In this regard, Tang believed that the absence of the economic growth target does not mean there won’t be any macro-policy adjustment. Under the current situation, in order to achieve poverty alleviation and risk prevention, it still needs countercyclical macro policies, especially leveraging more proactive fiscal policies and more flexible monetary policies to support the priority on employment and the strategy to expand domestic demand. Liu Zhe also said: “This year’s fiscal policy and monetary policy will cater to the security in the ‘six areas,’ especially basic living needs, job security and operations of market entities. The focus of the reform is to improve the supply efficiency of factors in key areas and core aspects through factor market reform, and to further tap the new dividends of factors, and to release new momentum for the mid to long-term sustainable development of the Chinese economy.” The Government Work Report said that a proactive fiscal policy should be further enhanced. This year’s budget deficit rate is planned at over 3.6%. The fiscal deficit will increase by 1 trillion yuan compared with last year. At the same time, 1 trillion yuan of special epidemic relief government bonds will be issued. All the above 2 trillion yuan will be transferred to local authorities, and a special transfer payment mechanism will be established to ensure that funds will directly reach the grassroots of the cities and counties to benefit enterprises and people. They will be mainly used to protect employment, basic people’s livelihood, and market entities, including support for tax reduction, rent and interest rate reduction, expansion of consumption and investment. They must be used for public fiscal purposes rather than any other purposes. “Governments at all levels must strictly control administrative spending, and the central government must take the lead. The central government’s expenditure is set to have a negative growth, and non-urgent and non-mandatory expenditures should be reduced by more than 50%. Any cash surplus or unused funds must be collected and rearranged. Governments must vigorously improve quality and increase efficiency, make sure all expenditures are carefully calculated and every yuan is spent to address real urgent needs, and allow market subjects and people to have a real feeling about it,” said the government work report. The report also proposed that the sound monetary policy should be more flexible and appropriate. The comprehensive use of means such as reduction in reserve requirement ratios and interest rates should be leveraged to ensure the broad money supply and social financing grow significantly faster than last year. The exchange rate of the yuan should be kept basically stable at a reasonable and balanced level. Innovative monetary policy tools should directly benefit the real economy, and it is imperative to allow enterprises to have easier access to loans, and continuously lower interest rates. Source: Jiemian News