China’s decision to revive its decades-long tradition of setting an economic growth target for 2021 is seen as a vote of confidence in its continued recovery from the effects of the coronavirus, but the low bar suggests focus has started to pivot back towards deleveraging to reduce debt and financial risks. Premier Li Keqiang on Friday announced a gross domestic product (GDP) growth rate target of “above 6 per cent” for this year as he laid out China’s economic and social plans in the government work report to the National People’s Congress in Beijing. The target was dropped last year as the country dealt with the fallout from the coronavirus, with a widespread debate among policy advisers whether the country should scrap the target altogether. “A target of over 6 per cent will enable all of us to devote full energy to promoting reform, innovation, and high-quality development,” Li told the country’s legislature as he delivered the annual government work report. 2021 offers the best opportunity since 2008 [after the global financial crisis], in the sense that the government has absolutely no pressure to maintain growth Zhang Zhiwei But with virtually all analysts projecting the Chinese economy will grow by more than 8 per cent this year, in part due to the low comparison base from a virus-hit 2020, Beijing is widely expected to easily exceed the target. In addition, the low target gives the government more leeway to address some chronic problems, in particular the risks of financial bubbles and rising debt, analysts said. “2021 offers the best opportunity since 2008 [after the global financial crisis], in the sense that the government has absolutely no pressure to maintain growth,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management. Zhang added that the low GDP target would give Beijing more room to tackle rising debt, the overexpansion of the real estate industry, the monopoly of big-tech companies and the “disorderly expansion of capital”, after having tolerated them for over a decade. Sun Guojun, a member of the Leading Party Members’ Group of the State Council Research Office who helped draft the government work report, said that the growth target was set at a relatively low level to ensure sustainable and healthy economic development. “We must not only consider the situation of this year, but also take into account the development needs for next year and the year after next as a whole, to avoid the projected target of violent fluctuations in different years,” he said. China’s economic growth target has not only a symbolic meaning, but also should be seen as a clear beacon for how policy will be formed and implemented in the year ahead, analysts said. “[The target of above 6 per cent] means a series of policy adjustments, especially in monetary policy and financial supervision,” Guan Qingyou, the chief economist at the Reality Institute of Advanced Finance, a private think tank, wrote on Friday on Weibo, China’s Twitter-like platform. The target of 11 million is not a low one, it is an arduous task to achieve this goal Guo Wei China also set a target of creating over 11 million new urban jobs this year, the same target as in 2019 before the coronavirus outbreak, and a surveyed urban unemployment rate of 5.5 per cent, compared to around 6 per cent last year. These targets are important for overall social stability, which Beijing equates with high levels of employment among its citizens. “The target of 11 million is not a low one, it is an arduous task to achieve this goal,” said Guo Wei, deputy director of the State Council Research Office after China created 11.86 million new urban jobs last year having set a target of 9 million. “The Chinese economy is still in the process of recovery and development, market conditions are complex and severe, and various uncertain factors are still increasing.” In a sign of the shift from economic stimulus to a stronger willingness to reduce debt, China trimmed back the central government’s fiscal deficit-to-GDP ratio target to 3.2 per cent from 3.6 per cent in 2020. The annual quota for net local government special purpose bond issuance was also cut to 3.65 trillion yuan (US$564 billion) from 3.75 trillion yuan, while the government decided not to issue any coronavirus bonds as it did last year. “These targets have two implications: First, it reinforces the contention that Beijing really has no intention to make a sharp policy shift,” said Nomura chief economist Lu Ting. “The pace of policy normalisation should be quite moderate. Second, there are negative implications from the increasing dependence of China’s local governments on debt financing. Once they borrow a lot [as they did last year], it is difficult to borrow less.” The overarching target for China’s policymakers this year is to stabilise the [debt-to -GDP] ratio. As such, policy tapering could happen in various areas such as monetary, fiscal and property Larry Hu The lower fiscal targets mean that China’s fiscal spending will decelerate, driving down infrastructure investment growth to 2 per cent this year from 3.4 per cent last year as China focuses on stabilising its overall leverage, according to Larry Hu, head of Greater China economics at Macquarie Group. “The overarching target for China’s policymakers this year is to stabilise the [debt-to -GDP] ratio. As such, policy tapering could happen in various areas such as monetary, fiscal and property,” said Hu. China’s debt-to-GDP ratio rose to 270.1 per cent last year from 246.5 per cent in 2019, according to figures from National Institution for Finance & Development. Beijing hoping for ‘appropriate’ 2021 fertility level as demographic challenges mount Last year, Beijing raised its budget deficit target and increased local government bond issuance in a bid to boost the economy and save jobs in industries hit by the coronavirus, contributing to the sharp rise of overall leverage. China’s powerful planning agency, the National Development and Reform Commission, also underscored the government‘s renewed emphasis on reducing financial risks on Friday by saying it would “strictly implement the risk prevention and control of local government debt” and “resolutely curb the rise of hidden debts”. “The modest reduction in the forecast budget deficit and special bond quota [highlights] the challenge that policymakers face in controlling financial risks as the economy recovers,” said Martin Petch, senior credit officer at the Sovereign Risk Group, part of Moody’s Investors Service.