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China Confirms Further Economic Slowdown: Highlights From 2018 Government Work Report

Courtesy of ZeroHedge. View original post here.

In the latest confirmation that as part of its grand deleveraging campaign, China’s economy is set to slow further in the current year, Beijing has set a 2018 growth target of around 6.5%, omitting an intention to hit “a faster pace if possible”, as the world’s largest nation continues its push to ensure financial stability. While the target of 6.5% is the same as last year, Bloomberg notes that the statement excludes an objective for output growth to be “higher if possible in practice” as it did in 2017.

The omission from the GDP growth target of ‘higher if possible’ and the new lower budget deficit target suggest slower growth and a fiscal drag,” said Eurasia’s Callum Henderson. “This makes sense for China in the context of the new focus on financial de-risking, poverty alleviation and environment clean-up, but is less good news at the margin for those economies that have high export exposure to China.”

China’s newly downgraded growth target was released Monday ahead of Premier Li Keqiang’s report to the National People’s Congress gathering in Beijing.

While China’s GDP surpassed 2017’s target with 6.9% growth, the first acceleration since 2010, economists forecast a moderation to 6.5% this year amid the ongoing deleveraging drive and trade tensions with the Trump administration. To be sure President – or rather Emperor – Xi Jinping has made it clear he will accept slower growth in his push to curb pollution, poverty and debt risk at a time when the world’s second-largest economy is on a long-term growth slowdown. As a result, numerical GDP targets have been de-emphasized in favor of higher-quality expansion since last year, according to Bloomberg.

The government also signaled its intent to continue efforts to slow debt growth, and set the budget deficit target markedly lower, at 2.6% of GDP, down from 3% in the past two years; news of the proposed reduction in borrowing sent 10-year sovereign bonds futures higher last week after Bloomberg reported the plan to reduce the budget deficit target.

Commenting on the proposal, Bloomberg’s Asia economist Tom Orlik said that “Li’s plan for the year is consistent with a moderate slowdown in real growth,” noting that “there were signals of significantly reduced fiscal support for growth, and lower ambitions on capacity closures in the industrial sector.

Furthermore, authorities reiterated their prior language saying prudent monetary policy will remain neutral this year and that they’ll ensure liquidity at a reasonable and stable level. The report said broad M2 money-supply growth would remain moderate, without including a numerical target as had been previously the case. M2 growth slowed to a record low 8.2 percent in December, down from more than 11 percent a year earlier. A separate report from the National Development and Reform Commission said M2 growth would remain roughly in line with last year’s real growth rates.

“We will improve the transmission mechanism of monetary policy, make better use of differentiated reserve ratio and credit policies, and encourage more funds to flow toward small and micro businesses, agriculture, rural areas, and rural residents, and poor areas, and to better serve the real economy,” state media reported, citing the work report. The report also said that an increase in the  thresholds for personal income taxes was planned.

Below courtesy of Bloomberg are the other key highlights from China’s government work report released today in Beijing.

Import tariff cut (or did Trump win the trade war already?):

  • China to lower import tariffs for vehicles and some consumer goods

Internet/Telecom:

  • China to cancel domestic Internet data roaming fees in 2018
  • China to cut rates for mobile Internet services by at least 30% this year
  • China to expand free wifi spots in public areas
  • China to lower broadband charges for families and enterprises

Opening up:

  • China to expand opening to foreign investment in telecom, new energy vehicle, healthcare and education

Tax and wages:

  • China to cut taxes for enterprises, individuals by 800b yuan this year
  • China to lift thresholds for for levying personal income taxes, without elaborating
  • China to adjust level of minimum wages reasonably this year

Property:

  • Govt reiterates that housing is not for speculation and aims to develop housing rental market
  • China to steadily push forward legislation of property tax, without elaborating

Capacity Cut:

  • China to cut steel capacity by 30m tons this year; to remove 150m coal capacity

Financial regulations:

  • China’s overall economic, financial risks controllable
  • China to boost coordination among financial regulators
  • China totally able to prevent systemic risks
  • China to improve regulation for shadow banking, Internet financing

Source: Bloomberg


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