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Jane Cai

Phoenix Kwong

China will target annual growth of no less than 6.5 per cent for the next five years as Premier Li Keqiang yesterday announced the highest budget deficit since 1976 in a “challenging” year ahead.
Grappling with sluggish economic dynamics at home and increasing uncertainties around the world, the central government said “strong” macro policies were needed and singled out innovation as a new driving force to help the economy bottom out and escape the middle-income trap.
China will budget a fiscal deficit of 3 per cent of gross domestic product, or 2.18 trillion yuan (HK$2.6 trillion) for 2016 to ensure a “reasonable range” of growth, compared with an actual deficit of 2.4 per cent last year.
The deficit would mainly facilitate tax and fee cuts for companies, according to the government work report delivered by Li to the National People’s Congress in Beijing.
Watch: China sets 2016 growth target range at 6.5 to 7 percent

“Our country’s development faces more and greater difficulties, and severer challenges this year, so we must be prepared for a tough battle,” Li said.
In another report, the National Development and Reform Commission (NDRC), China’s top economic planner said: “Stronger policies and greater efforts will be required if we are to achieve the targeted growth rate.”
The central government set a GDP target of between 6.5 and 7 per cent for this year, and aims to double 2010 GDP and per capita income by 2020, which implies annual growth of at least 6.5 per cent.
The government report said Hong Kong and Macau would use their distinct strengths to play bigger roles in China’s development, with Beijing supporting Hong Kong’s innovation and technology industry as well as its legal arbitration services.
Among the tasks for the year, Li also said that the plan to connect the Hong Kong and Shenzhen stock markets would be launched “at an appropriate time”.
Beijing’s key principles on Hong Kong – “one country, two systems”, “Hong Kong people governing Hong Kong” and “a high degree of autonomy” for the city – were reiterated in the reports, and it pledged to “promote harmony”.
Economists said it would be a daunting task to keep economic growth at above 6.5 per cent, even factoring in the effects of the new measures.
“[The government report] shows that Beijing had refocused on boosting growth instead of tackling overcapacity and deleveraging”, Mizuho Securities Asia chief economist Shen Jianguang said.
“A larger fiscal deficit budget and monetary easing are effective measures, but the growth target is still too aggressive, “ Shen said, adding that the global economic slowdown would continue to weigh on trade.
The government did not propose a specific trade growth target this year after a disappointing performance in 2015 in which exports and imports combined fell 7 per cent in renminbi terms and dropped 8 per cent in dollar terms – the target last year was 6 per cent growth.
China should launch strong macro policies – including boosting fiscal deficit and giving its “prudent monetary policy” a “slightly easing bias” this year to help the economy to bottom out, the NDRC report said.
China vowed to create more than 10 million new urban jobs this year and cap urban registered unemployment at 4.5 per cent. The actual unemployment ratio was 4.05 per cent last year, official data shows.
Officials hope that many of those jobs will be generated by new technology and internet-related industries.
Li emphasised the message, saying innovation was the primary driving force for the country’s development.
China aims to become a world leader in advanced industries such as semiconductors and in the next generation of chip materials, robotics, aviation equipment and satellites, the government said in its blueprint for development between 2016 and 2020.
R&D spending will be boosted to 2.5 per cent of GDP for the five-year period, compared with 2.1 per cent of GDP from 2011 to 2015.
ANZ Banking senior economist Raymond Yeung Yue-ting said unemployment was a challenge as the government’s economic reform would force some factories to close in efforts to eliminate overcapacity, while R&D would not turn into labour demand in the near term.
Additional reporting by Tony Cheung


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epa05195525 Delegates from Chinese People's Liberation Army (PLA) arrive before the opening of the fourth Session of the 12th National People's Congress (NPC) outside the Great Hall of the People in Beijing, China, 05 March 2016. The NPC has over 3,000 delegates and is the world's largest parliament or legislative assembly though its function is largely as a formal seal of approval for the policies fixed by the leaders of the Chinese Communist Party. EPA/WU HONG

(160305) -- BEIJING, March 5, 2016 (Xinhua) -- Leung Chun-ying (1st L, front), chief executive of the Hong Kong Special Administrative Region, attends the opening meeting of the fourth session of the 12th National People's Congress at the Great Hall of the People in Beijing, capital of China, March 5, 2016. (Xinhua/Ju Peng)(mcg)