China’s top leaders should reveal on Friday
how much they’re planning to spend on stimulus to support the
post-virus economy, when they belatedly announce their economic
policy blueprint for the rest of 2020.
The centerpiece event will be the work report delivered by
Premier Li Keqiang, which typically contains the economic growth
and spending targets, as well as the goals for jobs and
inflation.
Growth Target
The most important number to watch is the target for gross
domestic product growth, which is the anchor for policy making
and affects spending and debt sales. With the nation facing the
slowest growth in more than 40 years and uncertainty still high
with the virus raging globally, the government may however not
even announce a target this year. It’s possible that a
description of the desired level of growth or a range is
announced.
If the leadership does follow convention and publish a
numerical target, the pace and the language describing the
number should be closely watched. That will illustrate the
balance Beijing is trying to strike between restoring growth and
avoiding an unsustainable increase in debt. Economists mostly
expect a target below 3% or no number at all.
Nomura Holding Inc. economists updated their view on the
growth target, saying there’s a 50% probability that the
government will not announce it. Previously they had said there
was a small chance of this. There’s also a 50% chance the goal
will be set at about 2%-3%, they wrote Thursday.
Unemployment
It was already clear that jobs would be top of the agenda
this year, with Premier Li previously indicating that employment
would be prioritized over economic growth.
A steady supply of new jobs is crucial for both social
stability and government legitimacy and with only meager
unemployment benefits, getting people into work is also key for
supporting domestic spending. The plan is expected to detail
targets for new job creation and the jobless rate for the year.
Millions of Newly Jobless in China Pose a Looming Threat to
Xi
Last year the government aimed for more than 11 million new
urban jobs and a jobless rate of around 5.5% last year, and
claimed to have met those targets, despite the trade war.
However, the disruptions from the coronavirus outbreak threw
uncounted millions out of work and caused the jobless rate to
spike above 6% earlier this year.
The government is likely to focus on getting those people
back into work and ensuring jobs for the millions of people who
will join the workforce this year. Nevertheless, Macquarie Group
Ltd’s Larry Hu in Hong Kong expects the jobless rate to peak at
around 10%, and the increase in urban jobs to be about half the
level of last year.
Monetary Policy
The general “prudent, flexible and appropriate” stance of
monetary policy isn’t likely to change, but investors should
look for any shifts in the wording on monetary stimulus in the
report, which should flesh out the People’s Bank of China’s
promise earlier this month to use “more powerful” policies.
PBOC Vows Stronger Pro-Growth Policy But Leaves Details
Vague
The government could target faster credit growth in 2020
than last year and may promise to keep it expanding slightly
faster than nominal GDP growth. It will also likely drop the
promise to “avoid excess liquidity flooding the economy.” That
phrase was cut from the PBOC’s regular report earlier this month
and its removal indicates there will be less control on the
expansion of lending and debt.
In the past, the work report has set explicit goals for
bank lending or forecast detailed monetary policy actions such
as cutting banks’ required reserve ratios and interest rates.
Any indication of a reduction in the benchmark deposit rate
would also be an important signal of stimulus.
Fiscal Policy
Three numbers will set the tone of fiscal stimulus in 2020:
the official budget deficit ratio, the amount of local
government special bonds and the amount of sovereign special
bonds. Combined, these determine the real size of China’s
spending deficit.
Economists expect the government to drop the long-held
deficit limit of 3% of GDP for the first time in at least a
decade, but anything below 3.5% will disappoint expectations for
a substantial increase in spending.
Read more: Unraveling the Mysteries of China’s Multiple
Budgets
Special bonds sold by local governments will indicate how
much more infrastructure spending there will be this year. The
quota for those bonds is estimated to be between 3 to 4 trillion
yuan ($420-$560 billion), up from 2.15 trillion yuan last year.
Bloomberg