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China drops GDP target for first time in wake of coronavirus

China’s National People’s Congress has abandoned setting a gross domestic product target for the first time as the country faces its most severe economic downturn since the 1970s in the wake of the coronavirus outbreak.

The growth target is normally included in the work report that is presented at the annual gathering of lawmakers, which was delayed by almost three months this year owing to the pandemic.

Many experts do not trust China’s reported economic figures, but the target often provides guidance on the central government’s confidence in underlying economic conditions.

Growth in the first quarter of the year contracted by 6.8 per cent after the economy ground to a halt during the coronavirus outbreak. Many economists’ outlooks for 2020 are less than half of the 6.1 per cent growth rate posted last year.

Li Keqiang, the Chinese premier who delivered the report on Friday, noted that the government refrained from setting the target not because of domestic conditions but because foreign markets were so uncertain.

The outbreak initially devastated China’s capacity to manufacture products in its factories. But as the virus spread across the globe, demand from other markets for Chinese goods fell dramatically.

Mr Li noted that the negative growth caused by the economic slowdown was worth the lives saved.

“Life is invaluable,” he said. “This is a price we must pay, and a price worth paying.”

Many economists have argued that the target should be ditched because it promotes wasteful, low-quality growth. The target often pushed provincial officials to generate production regardless of demand.

“China’s decision to eschew a GDP growth target rightly de-emphasises growth at all costs and shifts the emphasis to the quality and sustainability of growth,” said Eswar Prasad at Cornell University.

“The government has wisely used the opportunity provided by the highly uncertain economic outlook in the aftermath of the coronavirus outbreak to drop the growth target.”

China has not yet committed to a big stimulus plan to bail out its economy.

“It’s in line with our expectation that the NPC would not send a strong signal for stimulus escalation, but Beijing could do it later this year,” said Larry Hu, head of greater China economics at Macquarie Group.

The work report said that China was expected to raise its fiscal deficit above 3.6 per cent of GDP, up from 2.6 per cent last year. It will also issue Rmb1tn ($140bn) in treasury bonds to mitigate the impact of Covid-19. 

The increase in fiscal deficit is a sign that China has relied more on fiscal policy during this crisis than pressuring banks to stimulate growth. However, the report also said the government would continue to push banks to increase loans to companies.

China has largely controlled the outbreak of coronavirus on its own soil. But the Communist party and its leader Xi Jinping still face some of the greatest challenges in several generations.

Mr Li listed several of the leadership’s worries: “Pressure on employment has risen significantly. Enterprises, especially micro, small and medium businesses, face growing difficulties. There are increasing risks in the financial sector and other areas.”

China also faces deepening tensions with the US. The world’s two largest economies have traded barbs over the origins and early containment of the coronavirus outbreak. Analysts have warned that the friction threatens the first phase of a trade deal agreed with the US at the start of the year.

The work report on Friday said China would continue to work with the US to implement the deal.

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