China GDP: ‘new uncertainties’ ahead for economy, Premier Li Keqiang warns, even with double-digit growth expected

China’s unbalanced economic recovery faces “new uncertainties”, warned Premier Li Keqiang, even with its growth in the first quarter predicted to hit an eye-catching 19 per cent.

Beijing is keen to maintain a cautious view towards the prospect for the world’s second largest economy, highlighted by setting a modest economic growth target of “above 6 per cent” for 2021, and is looking to keep necessary fiscal and monetary support in place.

China is set to release its first quarter gross domestic product (GDP) figure on Friday, with a double-digit growth figure expected after the economy shrank by a record 6.8 per cent in the first three months of 2020 due to the coronavirus.

“The low base in the same period of last year has brought incomparable factors, the current complex and severe international environment have added new uncertainties, the domestic economic recovery is not balanced,” Li told a forum of economists and entrepreneurs on Friday, according to comments released by the government on Sunday.

Peng Wensheng, chief economist at investment bank China International Capital Corporation (CICC), told the same event that real GDP is set to soar by 19 per cent in the first three months of 2021 compared to the same period last year.

“We expect that the annual real GDP growth rate is likely to be around 9 per cent, higher than the target of over 6 per cent in the government work report,” Peng said, according to a CICC statement on Sunday.

The Politburo, China top decision-making body, is expected to hold a meeting later this month to confirm Beijing’s rhetoric on the current economic situation and on future policy priorities.

“Not only the year-on-year growth rate should be watched, but also the quarter-on-quarter change … we need to keep a close eyes on new situations and new problems as well,” Li added.

“[China will] strengthen market regulation of raw materials to ease the cost pressure of companies.”

Li’s comment on raw materials followed a rare warning issued on Thursday by China’s Financial Stability and Development Commission, which is headed by Vice-Premier Liu He, President Xi Jinping’s top economic advisory, concerning the potential rise of commodity prices.

In March, the country’s official producer price index, which reflects the prices that factories charge wholesalers for their products, rose by 4.4 per cent from a year earlier, up from the gain of 1.7 per cent in February. This rise to the highest level since July 2018 was as a result of rising intentional commodity prices from crude oil to imported iron ore, China’s National Bureau of Statics said on Friday, and beat a Bloomberg survey of analysts which had predicted an increase of 3.6 per cent.

Economists and business representatives at the meeting with Premier Li on Sunday said that “the sharp rise in international commodity prices has brought great pressure on enterprises to increase costs”.

Li reaffirmed that there would be no sharp U-turn in policies, and that the government will “maintain the continuity, stability and sustainability of the macro policies”.

He said that the country will continue to impose targeted structural tax cuts in a bid to keep the intensity of ensuring jobs, livelihoods and market entities, while US President Joe Biden is looking to raise corporate income tax rates to fund his proposed US$2.3 trillion infrastructure spending plan.

Li again prioritised employment as “the foundation” of consolidating the economy.

“[The country will] boost flexible employment, strive to achieve relatively full employment and increase residents’ income,” he said.

“[China will] expand the opening up to the outside world, stabilise trade and foreign investment, maintain the basic stability of the yuan exchange rate at a reasonable and balanced level, and maintain the stability and security of the industrial chain and supply chain.”