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The “Two Sessions” meeting, the biggest political rally of the year in China, began this week. On Friday, all eyes will be on Premier Li Keqiang, who is expected to set the economic goals for 2021 – as well as what Beijing believes will need to be done to achieve them.
China emerged from the global recession caused by the coronavirus pandemic on a stronger footing than any other major economy, growing 2.3% over the year. Its recovery also appears to be accelerating in the latter months of the year, as trade strengthened and industrial production picked up, although it may have weakened in the first weeks of 2021.
Whatever Beijing’s action plan for its economy this year, it will likely do so without setting an official GDP target. China dropped its target last year for the first time in decades, but to get back on track with President Xi Jinping’s long-term target for the economy, GDP growth will need to double this year .

China spent hundreds of billions of dollars last year on programs to boost economic activity, including large infrastructure projects and cash distributions to its citizens.

This amount of spending is unlikely to be carried over to 2021. China has long been wary of increasing its debt burden, a concern some analysts suspect will lead authorities to cut budget support this year.

“The budget deficit is expected to be reduced in 2021 to ensure sustainability while avoiding a fiscal cliff,” Standard Chartered analysts wrote in a research note this week. They estimated that China’s budget deficit widened to 8.6 percent of GDP in 2020, an increase of three percentage points from the previous year.

Balanced recovery

Like other countries, China must figure out how to balance the need for at least one more stimulus as the recovery continues. with a growing debt burden.

After all, last year’s growth rate was still China’s slowest in decades. And there are a few weak spots in the economy: Retail sales have fallen behind, for example, suggesting that people are still reluctant to spend money as the country struggles to eradicate completely. Covid-19 epidemics.

An ambitious vaccination program is part of the equation, as China attempts to vaccinate the 1.4 billion people who live there. So far, it has only been vaccinated around 3.5% of the population, but plans to reach 40% by the end of June.

Larry Hu, head of the Chinese economy at Macquarie Group, said he expects the rate of infrastructure spending to slow to 2% from 3.4% last year. He also suspects that local governments will issue fewer special bonds, a form of spending primarily used to build infrastructure projects, including 5G networks, railways and airports.

But he doesn’t think Beijing will be too aggressive in slashing fiscal stimulus – a sentiment that has recently been echoed by some in Beijing.

Chinese leaders have pledged not to radically change economic policy this year.

In a statement released in December by the state-run Xinhua News Agency, senior politicians said they would “maintain the necessary support for the economy” and not “turn around.” [economic] Politics.”

“We are facing a paradox,” Ma Jun, a policy official at the People’s Bank of China, told an economic conference in January. “We have to change our monetary policy, but it cannot be too quick.”

However, in some areas Beijing is likely to tighten its purse strings. Earlier this week, Guo Shuqing, the Communist Party’s central bank boss, told reporters that the country’s real estate sector could be in a bubble. Regulators have already published rules intended to limit lending to the sector and may announce more in the days and weeks to come.

Other challenges

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

Scores of large state-owned companies have declared bankruptcy or defaulted on their loans over the past year – a worrying trend for an industry Chinese President Xi Jinping has wanted to strengthen as a major driver of economic activity and innovation. State-owned enterprise defaults reached $ 15.5 billion in 2020, up 220% from the previous year, according to recent estimates from Jinan-based Zhongtai Securities.

China also has other challenges.

By failing to set a GDP target, some experts – including Yang Weimin, the former secretary-general of the National Development and Reform Commission – argued that China may be losing the direction it needs to be. fix to keep its growth at the same rate. But others, including central bank politician Ma, have warned that overly ambitious targets could cause local governments to borrow too much, increasing the risk of accumulating “hidden” debt.

The country is also trying to boost its economy as it works toward other priorities, including a desire to shake off its reliance on the United States for key technology – though some of its efforts have been hampered by the restrictions. US companies on Chinese companies, such as semiconductor manufacturing. International company.
And he has yet to explain in detail his plans to become carbon neutral by 2060, an ambitious target given that China uses more coal than the rest of the world combined.

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