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 In a State of the Union style address to an annual parliament
meeting that began on Wednesday, Premier Li Keqiang said China aimed
to expand its economy by 7.5 percent this year, the highest among
the world's major powers, although he stressed that growth would not
get in the way of reforms.
In carefully crafted language that suggested Beijing had thought
hard about leaving the forecast unchanged from last year, Li said
the world's second-largest economy will pursue reforms stretching
from finance to the environment, even as it seeks to create jobs and
wealth.
After 30 years of red-hot double-digit growth that has lifted
millions out of poverty but also polluted the country's air and
water and saddled the nation with ominous debt levels, China wants
to change tack and rebalance its economy.
"Reform is the top priority for the government," Li told around
3,000 hand-picked delegates in his first parliamentary address 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."
Idle factories will be shut, private investment encouraged,
government red-tape cut and work on a new environmental protection
tax speeded up to create a greener economy powered by consumption
rather than investment, Li said.
To aid the transformation, China's economic planner, the National
Development and Reform Commission, told parliament the government
will target 17.5 percent growth in fixed-asset investment this year,
the slowest in 12 years.
Investment is the largest driver of China's economy and accounted
for over half of last year's 7.7 percent growth by rising 19.6
percent, above an 18 percent target.
Asian currencies rose on the news that China's $9.4 trillion economy
will stay on an even keel after its wobbly start for the year.
Investors had been worried by speculation that China may announce a
cut in its growth target this week.
"Given that GDP growth is expected to be 7.5 percent for 'longer',
we see this target as supportive for the Asian region, trade, and
for commodity currencies," said Annette Beacher, an analyst at TD
Securities in Singapore.
Others were less optimistic.
By declining to lower its 7.5 percent growth forecast, China is
betraying its refusal to break with the past, some analysts said.
That means Beijing may not be as radical in reforms as hoped.
"It's a sign that maybe they are not going to tackle credit growth
as quickly as we thought they might," said Julian Evans-Pritchard,
an economist at Capital Economics in Singapore.
NATURE'S RED-LIGHT WARNING
China's annual parliament meeting is a carefully choreographed
affair, generally devoid of real debate to portray unstinting
support for the government's one-party rule.
And as China's maturing economy grinds towards a more modest pace of
expansion — 7.5 percent growth would be the weakest in 24 years — Beijing is increasingly wary of any outburst of social discontent.
Before the parliament meeting began, a Reuters reporter saw police
drag away two protesters from Tiananmen Square, the site in central
Beijing of a bloody crackdown on pro-democracy demonstrations in
1989.
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Aware that one of China's pressing needs is to close sharp income
disparities, Beijing announced ambitious reforms at a Communist
Party plenum meeting in November that switched to slower but
better-quality expansion, from investment- and export-fuelled
growth.
Wednesday's announcements suggested it is well on track, but moving
cautiously.
Analysts have warned in the past that China will be unwilling to
rock the boat when it comes to reforms for fear of fuelling job
losses and undermining social stability. As such, they say difficult
changes such as government downsizing or closures of debt-laden
factories are likely to take a back seat.
Li repeated the government's standard rhetoric on financial reforms,
saying authorities will widen the yuan's trading band, relax its
grip on the currency and insure deposits, but he did not give a time
line.
On the environment, which has become an issue of increasing concern
in China, he did not mince his words.
"Smog is affecting large parts of China," Li said in his address
that lasted a little over 100 minutes. "Environmental pollution has
become a major problem, which is nature's red-light warning against
the model of inefficient and blind development."
He said the battle against pollution will be waged via price reforms
to boost non-fossil fuel power and cutting capacity in the steel and
cement sectors, China's largest air polluters.
Yet plans to cut steel and cement capacity comprise just a meager 2
percent to 2.5 percent of total capacity, and shutdowns may even be
outstripped by new capacity under construction, although this will
be more modern and less polluting.
And with many steel and cement factories already driven out of
business by falling demand, some analysts question China's
willingness to go the extra mile on pollution .
"Now, it is easy to impose environmental controls because 90 percent
of steel mills are losing money," said Xu Zhongbo, a Beijing-based
consultant in the metals sector.
(Additional reporting by Fiona Li, Michael Martina and David
Stanway; writing by Koh Gui Qing; editing by Raju Gopalakrishnan)
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