China sets modest annual growth target, vows to create more jobs

China on Friday set a modest annual economic growth target, at above 6%, and pledged to create more jobs in cities than last year, as the world’s second-biggest economy planned a careful course out of a year disrupted by COVID-19.

In 2020, China dropped a gross domestic product growth target from the premier’s work report for the first time since 2002 after the pandemic devastated its economy. China’s gross domestic product (GDP) expanded 2.3% last year, the weakest in 44 years but making it the only major economy to report growth.

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

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

China’s conservative growth target reflects a public effort to demonstrate a return to economic stability after last year’s COVID-19 upheaval, policy advisers said, while also keeping a lid on appetite for debt and risk.

“It’s obvious this year’s growth will be over 6%. The purpose is to tell people that we should focus on higher quality growth,” Yao Jingyuan, an adviser to China’s cabinet, told Reuters.

While the low GDP target does not mean the government will rush to tighten policy, with many parts of the economy still struggling, it will give planners more room to push reforms.

Premier Li pledged to spur domestic consumption and innovation, as part of a plan to reduce reliance on overseas markets and technology for long-term development.

As such, China plans to boost annual research and development spending by more than 7% every year until 2025.

“The target should be a bottom line. We should have more room for pushing forward difficult reforms,” said Xu Hongcai, deputy director of the economic policy commission at China Association of Policy Science.

In 2021, China will aim to create more than 11 million new urban jobs, Li said in his report delivered at the opening of this year’s meeting of parliament, up from last year’s goal of over 9 million and in line with recent years.

The government is targeting a 2021 budget deficit of around 3.2% of GDP, less than a goal of above 3.6% last year, though giving room to fund infrastructure and aid small firms.

Iris Pang, chief economist for Greater China at ING, said continued fiscal latitude was a more meaningful target than the growth target.

“The very low GDP growth target is like there is no target at all because the consensus is 8% and my forecast is 7%,” Pang told Reuters.

“I believe that most of the money will be used for technology R&D and continue to provide some buffer for job stability just in case COVID will have a comeback,” she added.

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

China also has no plan to issue special treasury bonds this year, having issued such bonds for the first time in 2020 to support the economy.

The outlook for government revenue and expenditure this year is “quite grave” given the modest availability of funds as spending rises, China said in its annual budget report, also released on Friday.

The government set its 2021 target for consumer price inflation at around 3%. Consumer prices rose an annual 2.5% last year, undershooting a target of around 3.5%.

In a five-year plan released separately on Friday, China omitted any GDP growth target for 2021-2025--in contrast to the 6.5% set for the 2016-2020 plan--but it said it would keep its average annual growth over the next five years in a “reasonable” range.

Annual growth in disposable income per capita over the next five years will be “in line with GDP growth”, compared with a 2016-20 goal of over 6.5%, according to the plan.

There was also no target for job creation over the next five years, though the government said the urban jobless rate will be kept under 5.5%.

China’s 2021 defence spending will rise 6.8% from 2020, up just slightly from last year’s budget increase and broadly tracking the government’s modest growth forecast, as the world’s second-largest economy emerges from the pandemic’s fallout.

Premier Li Keqiang pledged that efforts to strengthen the People’s Liberation Army, which is developing an array of weapons from stealthy fighters to aircraft carriers, would continue apace in the face of what China views as multiple security threats.

The spending figure, set at 1.35 trillion yuan ($208.47 billion) in the national budget released on Friday, is closely watched as a barometer of how aggressively the country will beef up its military.