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Course set to seek higher-quality development

March 11, 2021

China has been set on a course to achieve higher-quality development and to further open up its economy, according to leading experts.

They were responding to the Government Work Report, which was delivered by Premier Li Keqiang at the opening of the annual session of the National People's Congress, China's top legislature, on Friday in Beijing.

In the report, which sets out future goals as well as reviewing the past year, Li set a target of "above 6 percent" for GDP growth over the next year.

He also indicated that China would not resort to the same fiscal stimulus led by infrastructure spending that was seen last year, during the early months of the pandemic, given that the fiscal deficit this year is to be cut to 3.2 percent of GDP.

With many expecting China's economy to grow more than 8 percent this year from the low base of 2.3 percent last year, economists have welcomed the room that Li has given policymakers to rebalance the economy.

Stephen Roach, an economist and senior fellow at the Jackson Institute for Global Affairs at Yale University in the United States, said the report was a move away from strict targeting and was a "welcome development".

He said China is now committed to upgrading its economy and delivering high-quality growth.

"Barring another shock, Chinese GDP growth will easily exceed the low bar of 6 percent," he said.

"The emphasis on manufacturing, research and development, supply chain digitization and productivity all reaffirm the government's longstanding emphasis on upgrading to higher-quality growth-continuing the transition away from earlier emphasis on the quantity dimension of the growth experience."

Yue Su, principal economist at The Economist Intelligence Unit, an economics research organization, agreed that the actual GDP outcome is likely to easily surpass 6 percent.

"A flexible target aims to give greater room for policymaking. It will enable the authorities to concentrate on promoting reform and innovation," she said.

Jeremy Stevens, chief China economist at Standard Bank, Africa's largest bank, said China's remarkable recovery from the COVID-19 pandemic-it was the only major economy to grow at all last year-was reflected in the upbeat nature of the report. He said he thinks the economy could potentially grow 8 percent this year.

"The tone was rightly confident, given the manner in which COVID-19 has been managed, and set the scene for the economic recovery," he said.

Policy support

Stevens also welcomed the tightening of fiscal and monetary policy announced in the report.

"Last year, the economy was initially driven primarily by traditional levers-most notably, of course, infrastructure and real estate investment, which hit record levels after the first quarter. Policymakers were loath to go down this path, but felt they had no choice," he said.

Stevens said this "comes at the expense of tomorrow's growth and reinforces structural imbalances in the economy, exacerbates the country's overreliance on credit and infrastructure, and has led to a potential disconnect between the supply and demand".

Observers were looking for more details about the new "dual circulation" economic development model, in which the domestic market is the mainstay and the domestic and international markets reinforce each other. The new paradigm is the centerpiece of the 14th Five-Year Plan (2021-25) and is set to be approved at the NPC session.

Under this model, the domestic consumer will play a bigger role in driving the economy.

Wang Huiyao, president and founder of the Center for China and Globalization, a Beijing-based think tank, said there were a number of indicators of this in the report.

"The fact that growth will be strong will drive consumption in itself," he said, pointing out that China now has 400 million middle-income consumers and all extreme poverty has been alleviated. "Reviving rural areas will also potentially have a big impact on consumption at the county level," he said.

The report said consumer price index inflation would be around 3 percent in 2021, and 11 million new urban jobs would be created, maintaining urban unemployment at 5.5 percent.

It also committed China to spending an additional 7 percent annually in the next five years on research and development. China spent 2.44 trillion yuan ($375 billion), or 2.4 percent of its GDP, on R&D in 2020, according to officials.

Zhu Ning, a professor of finance at the Shanghai Advanced Institute of Finance, said this was an important part of upgrading the economy.

"China is also looking to become more self-reliant in technology so it is less vulnerable to attempts to threaten its supply chains," he said.

Premier Li said in the report that the government planned to reduce energy consumption by 13.5 percent and carbon dioxide emissions by 18 percent, both by unit of GDP, over the next five years. This is in line with the plan for carbon emissions to peak in 2030 and for the country to become carbon neutral by 2060.

Louis Kuijs, head of Asia at Oxford Economics, an economics research consultancy, said this was an important announcement.

"The report is committing to solid steps toward achieving these objectives," he said.

Li also made clear in the report that China was looking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

China joined the Regional Economic Cooperation Partnership, the other major Asian trade grouping, in November.

"This demonstrates China's commitment to substantive opening-up. After leaving the European Union, the United Kingdom intends to join the CPTPP, so I wouldn't be surprised if the US came back," said Wang from the Center for China and Globalization. The CPTPP evolved from the Trans-Pacific Partnership, which the United States withdrew from in 2017.

George Magnus, research associate at the Oxford University China Centre and a leading expert on China's economy, said he thinks the report attempts to maintain the current economic recovery without taking too many financial risks.

"It fits the script of taking stock after a testing and turbulent year, and the task for 2021 is to now pay down on the new five-year plan," he said.

Douglas McWilliams, executive deputy chairman and founder of the Centre for Economics and Business Research, a London-based economics consultancy, believes the report confirms that China has been the best-performing major economy in a tumultuous year.

"At a time when world GDP shrank by nearly 4 percent, the numbers in the report are impressive," he said.


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