March 1, 2019 / 12:11 AM / 7 months ago

China looks to parliament for reassurances as economy slows

BEIJING (Reuters) - China’s leaders will pledge in parliament next week to keep the country on safe footing as the economy faces its biggest test in years, amid pressure to roll out more measures to bolster growth and revive weak business and consumer confidence.

The government is expected to set a less ambitious target for the economy this year at the annual meeting of parliament, acknowledging that a mix of domestic and global factors will continue to weigh on China’s outlook.

But Premier Li Keqiang’s 2019 work report at the opening of the National People’s Congress (NPC) on Tuesday is expected to offer plenty of assurances that Beijing will do more to help struggling small businesses, boost demand and safeguard jobs.

Sweeping tax cuts may also be on the cards. Some economists estimate they could be worth nearly $300 billion.

China’s economy grew at its weakest pace last year since 1990, pressured by a trade war with the United States and Beijing’s crackdown on financial risks, which pushed up companies’ borrowing costs and stifled investment.

Sources have told Reuters that Beijing will likely set a growth target of 6.0-6.5 percent this year, down from around 6.5 percent in 2018. Gross domestic product (GDP) expanded 6.6 percent, cooling from the previous year.

Investors will closely watch the economic targets for clues on whether authorities will adjust monetary and fiscal policies.

Sharply lower growth in the world’s second-largest economy would alarm global financial markets and complicate expansion plans for foreign brands from Toyota to Siemens looking to garner a bigger share of the country’s 400 million-strong middle-class consumers.

Analysts say Beijing needs to keep growth above 6 percent to meet its a long-term goal of doubling GDP from 2010 to 2020. Officials worry that a deeper slowdown may fuel more job losses and pose a threat to social stability.

“The government will not accept quarterly growth of less than 6 percent in 2019, as they worry they may not be able to halt a downtrend,” said Lu Zhengwei, chief economist at Industrial Bank in Shanghai.

Policymakers have vowed they will not resort to massive stimulus like in the past, not wanting to derail progress from their efforts to contain risks in the complex and opaque financial system.

But policymakers have shifted their focus back to growth, with numerous steps to spur lending and lower firms’ financing costs. And, any additional tax and fee cuts would be on top of 1.3 trillion yuan in reductions last year.

FILE PHOTO: Chinese Premier Li Keqiang attends the sixth plenary session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 18, 2018. REUTERS/Jason Lee/File Photo

Sources also said China’s budget deficit is likely to rise from last year’s 2.6 percent of GDP, reflecting lower tax revenue and higher government spending, but could be kept below 3 percent. The target will be announced on Tuesday along with those for 2019 GDP growth target and consumer inflation.

Local governments are also expected to be given the green-light to sell 2 trillion yuan in off-budget special bonds to fund infrastructure, up from 1.35 trillion yuan last year.

TRADE WAR CASTS BIG SHADOW

But looming large over the assembly will be trade, with conflicting reports on whether Chinese and U.S. officials are inching closer to a deal that would de-escalate or end the countries’ tariff war.

The dispute has cost both countries billions of dollars and is inflicting growing damage on China’s trading partners from Japan to Germany.

“The trade war has exposed domestic problems, such as how to adapt to international rules, how to deal with the relationship with the world’s biggest economy, and how to conduct ‘normal’ competition rather than vicious competition,” said Wang Jun, Beijing-based chief economist at Zhongyuan Bank.

The largely rubber-stamp parliament is expected to pass a new foreign investment law banning forced technology transfer and illegal government “interference” in foreign business practices.

A local resident with red armband, identifying him as a security volunteer, reads a book as he guards near an alleyway ahead of the upcoming National People's Congress (NPC) of China's parliament, in central Beijing, China February 28, 2019. REUTERS/Jason Lee

Washington has accused Beijing of intellectual property theft and forced IP transfers, threatening further tariffs. China has repeatedly rejected such accusations.

China is also expected to outline plans to expedite the rollout of 5G mobile networks across the country, key to enabling new technologies such as driverless cars and allowing smart devices to talk with one another and spurring Chinese manufacturing onto a higher-value path. Huawei is China’s chief supplier of 5G chips.

Reporting by Ryan Woo and Kevin Yao; Editing by Kim Coghill

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