China is scrapping its annual economic growth targets for the first time in modern history as its leaders grapple with the economic fallout of the novel coronavirus pandemic.
In China's centrally planned economy, Beijing's GDP target serves as an all-important touchstone on which local governments and state enterprises fix their annual policies and investments.
China's economy shrank 6.8% in the first quarter this year, the first recorded contraction in more than 40 years. Official unemployment figures have risen to 6.2%, though independent analysts estimate the actual rate to hover around 20%. About 460,000 businesses have gone bankrupt, according to the South China Morning Post.
So this year, leaders are stressing economic stability and poverty alleviation rather than growth.
"Our country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the COVID-19 pandemic and the world economic and trade environment," said Premier Li Keqiang in his annual address to China's legislature, the National People's Congress. "Not setting a specific target for economic growth will enable all of us to concentrate on ensuring stability."
China normally announces its economic goals for the year during the annual meetings of its legislature and top political body, the Chinese People's Political Consultative Conference, held in February or March. Those meetings, known as the Two Sessions, kicked off this week after being delayed by nearly three months because of the novel coronavirus.
The delay meant local policymakers would have had less time to meet economic targets had they been announced.
Abandoning growth targets this year is a win for reform-minded economists in China, who have long argued for the abolition of fixed GDP growth targets, contending that they encourage inefficient policy-making and unsustainable growth.
A profound shift in economic policy
Instead, speaking to China's legislature in Beijing on Friday, Premier Li offered an alternative set of benchmarks for China to chart its economic progress, with the priority being shoring up support for the unemployed and creating jobs.
Li pledged to create nine million urban jobs and to lower unemployment to 6% for the remainder of 2020. To boost the non-state economy such as small-to-medium business performance, the government promises to cut taxes and encourage rent reductions.
"We must be clear that efforts to stabilize employment, ensure living standards, eliminate poverty and prevent and defuse risks must be underpinned by economic growth," said Li.
At just over an hour, his government work address this year is the shortest on record since China opened up its economy to global trade in the late 1970s.
Li also announced modest fiscal stimulus measures to prop up local governments struggling to meet debt and social welfare budget outlays.
Central authorities, Li said, would divert 2 trillion renminbi ($281 billion) to local governments and state-owned firms. Half of that amount will be transferred through the issuance of government bonds while the other half will be deficit spending targeted at reducing loan interest payments, rental fees and other taxes.
The measures are conservative compared to the scale of the approximately 4 trillion renminbi ($562 billion) fiscal stimulus package China unleashed in 2008-2009 amid a global recession.
As government revenues drop, China's budget deficit as a ratio of total economic activity is projected to rise to 3.6%, the first time since 1978 that this figure has risen past 3%.
"These are extraordinary measures for an unusual time," said Li.
You won’t find a paywall here. Come as often as you like — we’re not counting. You’ve found a like-minded tribe that cherishes what a free press stands for. If you can spend another couple of minutes making a pledge of as little as $5, you’ll feel like a superhero defending democracy for less than the cost of a month of Netflix.