(ATF) The Chinese government surprised many analysts on March 5 by setting a gross domestic product (GDP) target for the first time in two years in a sign that the economy has rebounded strongly from the coronavirus pandemic.
Central planners set the GDP target at above 6%, adding that they would keep the average growth rate over the next five years within a "reasonable" range.
The Chinese leadership is meeting in Beijing this week for the so-called "Two Sessions" – a gathering of the legislative National People's Congress and the advisory Chinese People's Political Consultative Conference – in which broad policies for 2021-2025 are announced.
"As a general target, China's growth rate has been set at over 6% for this year," Premier Li Keqiang said in his 2021 report. "In setting this target, we have taken into account the recovery of economic activity."
China's GDP growth target for 2016-2020 was over 6.5%.
Some analysts suggested the 2021 target was unexpectedly modest. "China unexpectedly set a GDP growth target, but at a relatively low level compared to the consensus forecasts and our forecast," said Iris Pang, chief China economist at ING.
In 2020, China dropped the target in the Premier's work report for the first time since 2002 after the pandemic devastated its economy. China's GDP expanded 2.3% last year, the only major economy to see growth.
"China has a strong adaptability to cope with the impact of the pandemic," said Zhang Yongjun, deputy chief economist at the China Center for International Economic Exchanges, a Beijing think tank.
"The new industries and models that emerged during the pandemic have promoted a steady recovery, transformation and upgrading of China’s economy."
However, the confident GDP target was offset by a more downbeat assessment offered by the Finance ministry. The outlook for China's government revenue and expenditure this year is "quite grave", the ministry said on March 5.
"On the whole, the outlook for government revenue and expenditure in 2021 appears quite grave, with even greater difficulty in balancing the budget and risks in key areas such as debt that cannot be overlooked," the ministry said in the report released at the start of the NPC meeting.
The ministry's caution follows a warning by Guo Shuqing, one of China’s most powerful financial regulators, about the dangers of “extremely loose monetary policies” such as those used in the US and other pandemic-affected economies.
Guo, chairman of the China Banking and Insurance Regulatory Commission, also said China’s market was still afflicted by “relatively large" bubbles.
Zhang Zhiwei, chief economist at Pinpoint Asset Management, said the government's policy to control the “bubble risk” is negative for the capital market in the short term, but beneficial in the long run.
"Strong economic data in the next few months will provide the government with a rare time window to control credit growth and stabilise the macro leverage ratio," he added.
Analysts said the upbeat forecasting has been tempered by a greater awareness of financial risks as a result of the pandemic.
"Recent comments by government officials suggest that a key theme will be a renewed focus on tackling financial risks, with both monetary and fiscal support likely to be withdrawn this year," Julian Evans-Pritchard, chief China economist at Capital Economics, said.
With reporting by Reuters