On March 5, Premier Li Keqiang of China’s State Council issued a report on the government’s work in 2019. Plain but powerful, this report is briefer than in past years.
This report’s background is as follows: starting in the fourth quarter of 2016, the short cycle of the Chinese economy accelerated and ended in the second half of 2018. The Chinese economy and even the global economy are again under the threat of a slowdown.
2020 will witness the first step in the realization of the "Chinese Dream." This year and next will be key for the Chinese government to win three tough battles: first, preventing and defusing financial risks; second, effecting targeted poverty alleviation; and third, achieving pollution control. Only in this context can we understand the “plain and power” of this report.
Premier Li first reviewed the operation of China's economy in 2018, touching upon three aspects using relevant data.
First, economic growth has somewhat slowed down, but it remained within a reasonable range. In 2018, China's GDP grew by 6.6% to exceed 90 trillion yuan (13.4 trillion USD). But prices dropped more rapidly. For example, in 2018, its Consumer Price Index (CPI) rose by only 2.1% over the previous year, while the Producer Price Index (PPI) hovered at zero at year’s end, indicating that the Chinese economy would face more pressure to slow down in 2019. Second, Chinese residents’ living conditions improved in 2018. Their per capita disposable income grew by 6.5% in real terms, basically in line with economic growth. China's surveyed unemployment rate was 5% in 2018, and 13 million new jobs were created throughout the year. At the same time, the situation of low-income and impoverished people in China improved greatly. Third, progress was made in economic restructuring, with more than 60% of economic growth coming from the service sector. Emerging industries driven by scientific and technological innovation showed themselves to be more important than ever.
As a result, China's fiscal and monetary policies will put more emphasis on precision this year and next, although the Chinese government aims to highlight more counter-cyclical, macro-regulation in 2019. There will be no all-encompassing strong stimulus from fiscal and monetary policy – meanwhile, macro-policies will remain continuous and stable.
What is Premier Li's macro-data expectation for the Chinese economy’s operation in 2019? If we summarize the full text, including data, it can be roughly summed up in three points.
First, GDP growth in 2019 is expected to range from 6.0% to 6.5%, while CPI is expected to be within 3%. As far as GDP growth is concerned, this would be the 10th year of growth slowdown since the second half of 2010. Liu Shijin, former vice-president of the Development Research Center of the State Council, pointed out that the GDP growth rate is anticipated to match or exceed 6% in 2019 and 2020, and may be above 5% over the next five years. The question is whether a country's economic growth can continue to slow down smoothly without falling into the "middle income trap," as Premier Li warned in previous government work reports.
Second, considering price operation, China is unlikely to have a CPI exceeding 2% in 2019 and its PPI may be near zero. Growth slowdown will bring deflationary pressure. Income growth of Chinese residents should basically keep pace with economic growth in 2019. Meanwhile, the government hopes to create 11 million new jobs and reduce the unemployment rate to 4.5%.
Third, the government's investment in infrastructure has increased, another means to achieve steady growth alongside fiscal and monetary policy.
As far as fiscal policy is concerned, the budget deficit set by the Chinese government in 2019 is 2.76 trillion yuan, while the deficit rate will increase by 0.2 percentage points to 2.8% — still below market expectations. In 2018, the Chinese government's tax and fee cuts amounted to 1.3 trillion yuan. In 2019, China has combined structural tax cuts with universal fee reduction, with the value added tax rate in the manufacturing sector and other industries falling from 16% to 13%. At present, the debt burden ratio of local governments in China is 33%, which is still quite stable.
China emphasizes a steady monetary policy such that the growth rate of broad money, M2, and the social financing scale should match the growth rate of nominal GDP, while maintaining reasonable and abundant liquidity. People are paying more attention to whether the transmission mechanism of monetary policy is smooth in 2019, while showing strong confidence in the basic stability of the RMB exchange rate at a reasonable and balanced level.
Premier Li touched on many other issues in his government work report, stressing that China is still the world’s largest developing country and that development is the key to solving all problems. He also emphasized that the sustainable development of the Chinese economy should rely on innovation. He thoroughly discussed how to encourage innovation and openness, while also highlighting the need to maintain a balance between stable growth and risk prevention — a situation made more difficult by slowing global growth and rising protectionism in 2019.
The government work report conveys the message that, amid the world economy’s many uncertainties, the Chinese government will strive to sustain China's economic growth and the overall path of reform and opening up.