China’s 2018 Economic Targets Reflect Slower Economic Growth, while Monetary and Fiscal Policies are Still Being Used to Sustain Economic Growth Ahead (Business Brief No.3730)

All eyes were on the National People’s Congress, March 5, 2018, because the ruling Communist Party proposed constitutional amendments to remove the two-term limit for the presidency. This will pave the way for President Xi Jinping to have centralized authority for the first time during his second presidential term .

On the first day of the National People’s Congress, China announced its preliminary 2018 economic growth target of 6.5 percent. This is consistent with KResearch’s view that the Chinese economy will likely slow to 6.6 percent growth, or within a range of 6.4-6.7 percent because its export growth in US Dollar may decline substantially to 5.0 percent in 2018, versus the 7.9 percent pace recorded for 2017.

Given a subdued Chinese economy and the likelihood that the US will introduce more trade barriers, we at KResearch are of the view that China will likely focus on achieving its economic targets during 2018. If the Chinese economic performance meets the set growth target, it is expected that China will press ahead with its restructuring plans, especially state-owned enterprise reform and the removal of excess capacities in the industrial sector, aside from ongoing efforts to curb loan growth, aimed at preventing risk arising from hefty corporate and household debt that is threatening its financial system stability.

Meanwhile, close attention must be paid to heightened risk in the global trading system after the US announced to impose “safeguard” measures as it could undermine the Chinese economic performance over the medium term. Meanwhile, China’s policy stance toward this issue should be made clearer after the National People’s Congress. It is expected that Beijing will adopt a compromising and constructive stance to contain such a risk.