China likely to avoid setting 2021 GDP target over debt concerns: Sources

China had set no target in 2020, for the first time in 18 years. PHOTO: EPA-EFE

BEIJING (REUTERS) - China will likely avoid setting a 2021 growth target, dropping the closely watched measure for a second straight year on concerns that maintaining one could encourage provincial economies to ramp up debt, policy sources told Reuters.

The world's second-biggest economy eked out 2.3 per cent growth last year despite the ravages of the coronavirus which was first detected in the central city of Wuhan, and will rebound a sharp 8.4 per cent this year, thanks to Beijing's aggressive Covid-19 response and global recovery, according to a Reuters poll of economists.

But policymakers fear that pegging official ambitions to a specific rate of growth could encourage regional governments to pursue even higher growth, in turn prompting an unhealthy rise in debt to hit the target, two sources said.

Government advisers who call for scrapping the gross domestic product (GDP) target again this year appear to be gaining the upper hand, while policymakers may again signal a goal implicitly by targeting employment and other indicators, said the sources, who asked not to be identified because the discussions are confidential.

"We will not set an explicit target, but in reality there will be a target," said a government adviser, one of three sources saying the target will again be scrapped. "We will not emphasise the importance of achieving a target at all costs."

But internal discussions are continuing ahead of China's annual Parliament meeting in early March, and one source said the National Development and Reform Commission, the top state planner, remains keen to have a growth target.

Debt worries

Even before the pandemic, internal calls to scrap growth targets - a legacy of decades of central planning in the Communist Party-ruled country - had been growing since President Xi Jinping pledged in 2017 to pursue "higher-quality" growth, reducing reliance on debt-fuelled stimulus and encouraging more productive investment.

China set no target last year, for the first time in 18 years, as Covid-19 roiled the global economy, sending China into a sharp contraction before it mounted a robust recovery, thanks to strict virus controls and heavy demand for Chinese-made goods from countries struggling with the outbreak.

Still, many economists suspect the government maintained an implicit growth goal of around 3 per cent in 2020.

The government is expected to target inflation at around 3 per cent this year, below last year's goal of about 3.5 per cent, but above the actual 2.5 per cent rise in consumer prices, the sources told Reuters.

Policymakers plan to set an average annual growth target of around 5 per cent for the 14th five-year plan starting this year, Reuters reported in November.

Mr Ma Jun, an influential policy adviser to the central bank, told a recent forum that China should abolish GDP targets, switching to employment and inflation as the main policy goals.

"If we use GDP growth as an official target, local governments may... set very high GDP targets, thus increasing financial risks from hidden debt, because it's easier to rely on borrowing to achieve investment-driven GDP growth than other methods," Ma said.

Central bank governor Yi Gang has said China's total debt hit about 280 per cent of GDP at the end of 2020, spiking 20 percentage points from a year earlier - but would likely stabilise in 2021.

Some local authorities are already raising growth targets for this year.

Hainan, an island province that the central government wants to develop into a free trade port, aims for over 10 per cent, up from last year's goal of around 6.5 per cent.

Hubei province, which includes Wuhan city, is targeting growth of over 10 per cent this year, while Henan and Hunan provinces have targets above 7 per cent.

Guangdong, the largest provincial economy, is targeting growth above 6 per cent, up from a goal of around 6 per cent last year.

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