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News analysis

Lower target gives Chinese government space to tackle economic woes: Analysts

China's growth target of "about 6.5 per cent" is a realistic goal that will give the government wiggle room to tackle existing economic problems, said economists.

While there are signs that the Chinese economy is improving, more work needs to be done to tackle over-capacity, keep financial risks in check and control corporate debt, they told The Straits Times.

This means the target should not be set too high, said Dr Yan Se, a senior China economist at Standard Chartered Bank in Beijing.

"China should take the opportunity of the upturn to build a sound and robust system that can withstand future bubbles or external uncertainties," he added.

Chinese Premier Li Keqiang said yesterday in his government work report to the National People's Congress, China's Parliament, that the growth target for this year is "around 6.5 per cent".

UOB senior economist Suan Teck Kin said Beijing's key concern is whether the growth rate is able to provide enough jobs.

 
 
 

With growth of 6.7 per cent, China was able to create 13.14 million jobs last year, he noted. So the world's second-largest economy essentially needs only to grow at about 6.5 per cent to meet the 11 million jobs target this year, he said.

This was confirmed by Mr Huang Shouhong, director of the State Council Research Office, who helped to draft the work report.

He told reporters yesterday that this lower growth target is enough to "safeguard employment".

"As long as we can ensure that there are no problems in employment, a higher or lower growth is acceptable," he said in response to a question on whether there is a lower limit on growth.

Premier Li also promised to "make big moves to improve the environment for foreign investors".

Dr Yan said: "The high level of openness in attracting foreign direct investment is, to me, the most important area outlined in the report."

He noted that local governments will now be able to adopt preferential policies to attract foreign investors. Service industries, manufacturing and mining will also be made more open to them.

The extent of opening up the market is "unprecedented" and will help boost growth for the longer term, said Dr Yan.

The report also envisaged innovation-driven development in the long term.

To this end, the government will strengthen its capability for making technological innovations, said Mr Li. This includes setting up innovation hubs and bringing in foreign talent.

External uncertainties also point to a more conservative growth target, said Mr Suan.

In the United States, there is President Donald Trump, who could implement trade policies that are viewed as unfair to China. Mr Suan also pointed to uncertainty in Europe, where there are elections happening this year and Brexit negotiations could be set in motion.

"So China is looking to improve domestic demand, and use it as a driver to negate the negatives from the outside," he added.

Premier Li in his report said that the government will do more to increase domestic demand, particularly for services, a fast-growing sector.

Some of the policy measures - including boosting education, cultural and creative services and tourism - are aimed at a population that is growing more affluent and more willing to spend.

Measures to boost growth also include cost-cutting. Mr Li outlined plans to cut business costs particularly for small and medium-sized enterprises, which contribute about 60 per cent to the country's gross domestic product.

The government will also do away with 35 administrative charges and slash myriad other non-tax burdens to help companies survive and thrive.

But what won huge applause from the audience of nearly 3,000 lawmakers was a measure to ensure more cost-effective information networks - the slashing of mobile phone rates, including abolishing rates for domestic roaming and long-distance calls.

A version of this article appeared in the print edition of The Straits Times on March 06, 2017, with the headline 'Lower target gives govt space to tackle economic woes: Analysts'. Print Edition | Subscribe