China’s clear message: jobs and stability now take the lead in economic growth

Growth is now a consequence of economic and social stability rather than other way around. Still, given the proposed budget deficit and stated aims to create and preserve jobs, China’s economy needs to grow at least 2 per cent

Growth may return as early as the second quarter but, if needed, China has left policy room for further easing and stimulus

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A giant screen in Beijing shows President Xi Jinping during the closing session of the National People’s Congress on May 28. Photo: AFP

Published: 9:00pm, 3 Jun 2020Updated: 10:28pm, 3 Jun 2020

The recently concluded National People’s Congress meetings delivered two important economic messages. First, Beijing has placed job and social stability ahead of an explicit growth target as this year’s economic priority. Second, fulfilling these objectives will not be easy and will require policy easing to fend off negative forces to keep the economy on an even keel.

However, not announcing a growth target does not mean the authorities will accept any growth rate. A back-of-the-envelope calculation, based on the proposed budget deficit, suggests a nominal growth rate of 5.4 per cent, or real growth of 2-3 per cent, depending on the assumption on the GDP deflator.

More importantly, achieving the “six stabilities”, particularly the objectives of creating nine million jobs and keeping the unemployment rate at around 6 per cent, will require positive economic growth, by our estimate. It is just that growth is now a consequence of economic and social stability, as opposed to the cause, as in previous years.

To deliver these goals, Beijing has announced a decent stimulus package, consisting of a higher on-budget deficit (at least 3.6 per cent of GDP), one trillion yuan (US$140 billion) worth of central government special bonds, and a 1.6 trillion yuan increase in the local government special bond quota (to 3.75 trillion yuan).

In addition, the budget announcement suggests that up to one trillion yuan will be transferred from fiscal reserves to finance extra budget spending. In all, the total fiscal package could be worth about 4.2 per cent of GDP.

At first glance, the proposed stimulus seems somewhat timid. Not only is it much smaller than those announced by most Western governments, it also pales in comparison to what was implemented during the last global financial crisis.