China sets modest 6% economic growth target amid COVID rebound

Expected 2021 growth rate is far below what economists are forecasting as Beijing aims for more sustainable development.

The Chinese government is trying to grow the country's economy without adding significantly to its debts, analysts say [Carlos Garcia Rawlins/Reuters]

China has set a modest annual economic growth target, at above 6 percent and pledged to create more jobs in cities than last year, as the world’s second-biggest economy emerged from a year disrupted by the effects of COVID-19.

In 2020, China dropped a gross domestic product (GDP) growth goal from the premier’s work report for the first time since 2002 after the pandemic devastated its economy.

“As a general target, China’s growth rate has been set at over 6 percent for this year,” Premier Li Keqiang said in his 2021 work report delivered at the opening of this year’s meeting of parliament, or National People’s Congress. “In setting this target, we have taken into account the recovery of economic activity.”

“In 2021, China will continue to face many development risks and challenges but the economic fundamentals that will sustain long-term growth remain unchanged,” said Li. “A target of over 6 percent will enable all of us to devote full energy to promoting reform, innovation, and high-quality development.”

China’s GDP expanded by 2.3 percent last year, the only large economy to see growth.

China GDP growth chart [Bloomberg]

But the 2021 goal was significantly below the consensus of analysts, who expect growth could beat 8 percent this year. Chinese shares fell.

“If sequential growth averages zero from [the first quarter to the fourth quarter] this year, we will get around 6.1 percent annual growth this year,” investment bank Nomura said in a note.

“Beijing does not want to set a growth target too close to 8 percent as it does not want to slash the growth target next year.”

Aninda Mitra, a senior sovereign analyst at BNY Mellon Investment Management, said the modest growth goal will allow the authorities to emphasise the quality of growth rather than its quantity.

“In the aftermath of the pandemic, a low bar should allow most provinces to cross the hurdle without overstretching themselves financially,” Mitra said.

Energy plans

As part of its next long-term economic plan, China set a modest five-year growth target for its nuclear power generation capacity and promised quicker development of alternative energy sources as it seeks to cut its carbon footprint, but left its coal industry largely untouched.

“The new Five Year Plan is mostly about ‘sustained and higher-quality growth’ for 2021-25,” Daiwa Capital Markets economists Kevin Lai and Eileen Lin said in a research note sent to Al Jazeera.

“The government has vowed to ramp up [research and development] spending by over 7 percent annually. We had expected 5G, semiconductors, artificial intelligence, Big Data, satellite technology, electric vehicles, green energy and biotech to attract most of this spending. To our surprise, however, nuclear power was singled out as an area to be promoted.”

The world’s third-largest largest nuclear power producer, aims to have 70 gigawatts (GW) of installed capacity by 2025, the government said in its 2021-2025 plan delivered to the Chinese parliament.

China originally aimed to bring its total nuclear installed capacity to 58 GW by 2020 but failed to meet the target following a long moratorium on new projects as well as delays at new third-generation plants.

The plan also called for a rapid boost to wind and solar power generation and promotion of electricity generation from waste to help China meet its goal of having non-fossil fuels meet around 20 percent of total energy consumption by 2025.

The world’s top energy consumer has pledged to become carbon neutral by 2060 but has to play a delicate balancing act to support its energy needs for growth.

Towards that end, the government has called for accelerating unconventional oil and gas resource development during the five-year period, including tapping deep-sea offshore China and deep onshore reservoirs that require more sophisticated equipment and drilling technology.

The plan said China will expand infrastructure spending especially on natural gas by 2025, including building long-distance domestic trunk lines to transport gas from Russia’s Siberia, as well as a second project to pipe gas from southwestern Sichuan to the east.

The government, however, stopped short of introducing a ban on building new coal-fired plants, nor set a target for curtailing coal power plants’ capacity for 2021-2025, although Beijing aims to cut the economy’s carbon intensity by 18%.

Instead, it called for “appropriately managing” the pace of coal power expansion and let electricity partially replace coal.

Job creation

In 2021, China will aim to create more than 11 million new urban jobs, Li said in his report.

Job creation is a key focus of Beijing’s latest economic goals [Carlos Garcia Rawlins/Reuters]

This is up from an objective of creating more than nine million new urban jobs last year and in line with recent years.

Also in keeping with an improving economy, the government is aiming for a 2021 budget deficit of about 3.2 percent of GDP, less than its goal of above 3.6 percent last year.

The quota on local government special bond issuance was set at 3.65 trillion yuan ($563.65bn), also down from 3.75 trillion yuan ($579bn) last year.

China also has no plan to issue special treasury bonds this year, after issuing such bonds for the first time last year to support the virus-hit economy.

The government has set its 2021 target for consumer price inflation at approximately 3 percent, compared with a goal of about 3.5 percent last year.

Source: Al Jazeera and news agencies