Premier Li Keqiang has warned of “tough challenges” ahead after cutting China’s economic growth target for 2019 to levels not seen for 30 years.
In his annual state-of-the-union-style address, he told nearly 3,000 delegates at the 13th National People’s Congress in Beijing that GDP growth would be between 6% and 6.5% this year, as predicted by Asia Times.
Last year, it was 6.6%, which was the lowest level since 1990, after being buffeted by a cooling economy and China’s brutal trade war with the United States.
“We will face a graver and more complicated environment, as well as risks and challenges in pursuing development this year,” Li told the Communist Party faithful in the Great Hall of the People on Tuesday. “We must be fully prepared for a tough struggle.
“Setbacks in economic globalization, challenges to multilateralism, shocks in the international financial market and especially the China-US economic and trade frictions had an adverse effect on the production and business operations of some companies [in 2018], as well as on market expectations,” he added.
Li also announced on the opening day of the Congress that the government’s target for consumer price inflation this year would be around 3% with a budget deficit goal of 2.8% of GDP.
He then went on to reveal that three-quarters of China’s provinces had already lowered their annual growth targets for 2019.
“We have made a moderate adjustment to our projection on the basis of a thorough assessment of destabilizing factors and uncertainties affecting the economic performance,” Li said, reading from the annual Government Work Report.
Still, to help small businesses struggling with the downturn, Beijing will raise the value-added tax, or VAT, threshold to 100,000 yuan (US$15,000) in monthly sales from 30,000 yuan (US$4,500).
Major large state banks have also been told to increase their lending by up to 30% for the private sector and, in particular, small- and medium-sized companies.
“Beijing is determined to achieve 6% growth for the next two years to deliver on its promise of doubling GDP for the decade ending 2020,” Lu Ting, an analyst at Nomura bank, said.
During the past 12 months, the private sector has been hit hard by the trade dispute with the US after Washington imposed tariffs worth up to $250 billion on Chinese imports entering the US.
In January, the National Bureau of Statistics, or NBS, announced that GDP growth for 2018 slowed to what at first glance appeared a robust 6.6%. In reality, this was the slowest pace in nearly 30 years as manufacturing stalled and consumer spending dipped.
Smartphone shipments also dropped while car sales plunged 5.8% last year to 22.35 million vehicles, which was the first annual decline since 1990.
But the first economic snapshot of 2019 came in February when the Ministry of Commerce and the statistics bureau reported that sales growth fell to its lowest levels for eight years during the Chinese New Year festive period.
Last week, there was further evidence of a cooling business environment when data released by the NBS showed that factory activity in the world’s second-largest economy contracted to a three-year low in February.
“China is facing a complicated terrain of increasing dilemmas, with multiple targets to attain, such as ensuring stable growth and preventing risks,” Li said.
He also made it clear in his address that Congress will pass a new law regulating foreign investment, which would bar the practice of forced technology transfers by foreign firms to Chinese joint-venture partners.
This was expected and was thrashed out during three rounds of trade talks with the US to curb rising tensions between the two economic powers.
“[Beijing will] create a fair and impartial market environment where Chinese and foreign companies are treated as equals and engage in fair competition,” Li said.
Yet despite the cooling economic climate, China plans to increase its military spending by 7.5% in 2019 to 1.19 trillion yuan ($177.6 billion).
Although the world’s second-largest economy has the second-largest defense budget, it still lags behind the US, which has earmarked $716 billion for the military this year.
Even so, its neighbors have become nervous of the country’s growing power as Beijing steps up its rhetoric against independence movements in self-ruled Taiwan and continues to assert its vast territorial claims in the disputed South China Sea.
Those concerns were addressed by Zhang Yesui, the National People’s Congress spokesman, when he stressed on Monday that China “doesn’t pose a threat to other countries.”
“[Our] limited spending on defense only aims to maintain the sovereignty, security and territorial integrity of the country,” Zhang told a media conference.