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 In a State of the Union style address to China's annual parliament
meeting that began on Wednesday, Premier Li Keqiang said Beijing
aims to grow the world's second-largest economy by 7.5 percent this
year, the same as last year's target. Analysts have said maintaining
the target after years of breakneck expansion signals that Beijing
will remain focused on reforms and rebalancing the economy.
Li said enacting reforms was his first priority even as he keeps an
eye on growth. Idle factories will be shut, and work on a new
environmental protection tax will be sped up to create a greener and
more balanced economy powered by consumption rather than investment,
he said.
"Reform is the top priority for the government this year," Li told
around 3,000 hand-picked delegates in a cavernous meeting hall in
central Beijing.
"We must have...the mettle to fight on and break mental shackles to
deepen reforms on all fronts."
To aid the transformation, China's economic planner, the National
Development and Reform Commission, told parliament that the
government will target 17.5 percent growth in fixed-asset investment
this year, the slowest in at least 10 years.
Investment is the largest driver of China's economy and accounted
for over half of last year's 7.7 percent growth by expanding 19.6
percent, exceeding an 18 percent target.
Analysts welcomed slower investment growth although some worried
about the impact of environmental measures on jobs and incomes.
"There have been a lot of environmental protection-related
initiatives, but the issue has started to have some negative impact
on people's livelihood and in the economy," said Paul Tang, an
economist at Bank of East Asia in Hong Kong. "It is an area that
needs to be addressed."
Li said the battle against pollution will be waged via reforms in
energy pricing to boost non-fossil fuel power and cutting capacity
in the steel and cement sectors which are the sources of much air
pollution.
But plans to cut 27 million tonnes (1 tonne = 1.102 metric tons) of
outdated steel capacity this year comprise less than 2.5 percent of
total capacity and will be outstripped by new capacity currently
under construction, although this will be more modern and less
polluting.
The targeted cement closures amounting to 42 million tonnes comprise
less than 2 percent of last year's total production. Many steel and
cement factories have also been shutting down for economic reasons,
putting China's willingness to go the extra mile on pollution into
question.
NATURE'S RED-LIGHT WARNING
At a plenum meeting of the ruling Communist Party last November,
China announced ambitious reforms that signalled the shift from
investment- and export-fuelled growth towards a slower, more
balanced and sustained expansion.
Wednesday's announcements signal that it is well on track, but
moving cautiously.
Li, China's first premier with an economics doctorate, said the
government would maintain an inflation target of around 3.5 percent
for 2014. Broad M2 money supply growth would be kept at 13 percent,
also widely expected.
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He said authorities would set up a deposit insurance scheme, a step
toward China's goal of freeing up bank deposit rates. The scheme
would protect depositors as Beijing is concerned some smaller
lenders could go under as banks compete for deposits in a more open
regime.
Li also said the government would push forward reform of the yuan
exchange rate. Convertibility of the yuan on the capital account
would be brought forward, Li said.
The government plans 15.3 trillion yuan ($2.5 trillion) in budgeted
spending in 2014, which would produce a deficit of about 2.1 percent
of GDP, unchanged from the actual shortfall in 2013, the finance
ministry said.
Some changes, such as government downsizing or closures of
debt-laden factories in sectors gripped by overcapacity, are likely
to take a back seat to avoid fuelling job losses and undermining
social stability, analysts say.
After thirty years of scorching double-digit economic growth that
lifted hundreds of millions of Chinese from abject poverty, but
damaged China's natural environment by polluting its air and water,
Beijing clearly wants to change tack.
"Smog is affecting large parts of China and environmental pollution
has become a major problem, which is nature's red-light warning
against the model of inefficient and blind development," Li said.
Yet acutely aware that the reform agenda will be derailed if the
economy slows abruptly, Beijing wants to pursue change at a gradual
pace.
During the parliament meeting, key government ministries and the
central bank will hold a series of press briefings to cover a wide
range of economic and social issues.
Li is scheduled to hold a news conference at the end of the
parliament meeting on March 13.
(Additional reporting by Fiona Li,
Michael Martina and David Stanway; writing by Koh Gui Qing; editing
by Raju Gopalakrishnan)
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