China has set an economic growth target of “around 5%” and pledged to pump billions of dollars into its ailing economy, which is now facing a trade war with the US. The country’s leaders unveiled the plan as thousands of delegates attend the National People’s Congress, a rubber-stamp parliament that passes decisions made behind closed doors. But the week-long gathering is closely watched for clues on Beijing’s policy changes – and this year is more significant than most.
China’s President Xi Jinping has been battling persistently low consumption, a property crisis, and unemployment before Donald Trump’s new 10% levy on Chinese imports came into effect on Tuesday. This follows the 10% tariff imposed in early February, taking the total US levy to 20%. And it hits what has been a rare bright spot for the Chinese economy: exports.
Beijing hit back almost immediately, announcing retaliatory action that included 10%-15% tariffs on certain agriculture imports from the US, which is key because China is the biggest market for these goods, such as American corn, wheat, and soybeans.
At the opening of the two-week meeting, known as the Two Sessions, China vowed to make domestic demand the “main engine and anchor” of its economic growth. Beijing was able to meet its 5% target for the last two years, driven by strong exports, resulting in a nearly trillion-dollar record trade surplus. But repeating that is going to be much harder this year.
If the tariffs linger, Chinese exports to the US could drop by a quarter to a third, says Harry Murphy Cruise, head of China economics at Moody’s Analytics.
Beijing is going to have to rely more than ever on domestic spending to achieve 5% growth – but that has been one of its biggest challenges.
On Wednesday, Chinese Premier Li Qiang said consumption has been sluggish and pledged to “vigorously boost” household demand. “Domestically, the foundation for China’s sustained economic recovery and growth is not strong enough,” he said.
Internationally, changes unseen in a century are unfolding across the world at a faster pace, including the rise of protectionism around the world. Beijing has already rolled out schemes to encourage its people to spend more, including allowing them to trade in and replace consumer goods like kitchen appliances, cars, phones, and electronic devices.
The government now aims to put more money into ordinary Chinese people’s pockets and help cut the country’s reliance on exports and investment.
Beijing’s plans include issuing 1.3 trillion yuan ($179bn; £140bn) in special treasury bonds this year to help fund its stimulus measures. Local governments will also be allowed to increase the amount of money they borrow to 4.4 trillion yuan, up from 3.9 trillion yuan, according to the annual “Work Report”.
In a rare move, Beijing raised its fiscal deficit – the difference between the government’s spending and revenue – by one percentage point to 4% of gross domestic product (GDP), the highest level in decades. The hike signals Beijing’s commitment to increase spending to shore up growth.
It also announced plans to create more than 12 million jobs in cities, setting a target for urban unemployment at around 5.5% for 2025. The figure stood at 5.1% last year.
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