China cuts growth target, to build 'firewall' against risks
Premier Li says it plans to expand by 6.5% this year, down from last year's target of 6.5-7%
BEIJING: China has cut its growth target this year as the world's second-largest economy pushes through painful reforms to address a rapid build-up in debt and constructs a "firewall" against financial risks.
China aims to expand its economy by around 6.5 per cent this year, Premier Li Keqiang said at the opening of the annual meeting of Parliament yesterday.
China targeted growth of 6.5 per cent to 7 per cent last year and ultimately achieved 6.7 per cent, the country's slowest pace of growth in 26 years.
A lending binge and increased government spending have fuelled worries among China's top leaders about elevated debt levels and an overheating housing market.
This year's target for broad money supply growth was cut to around 12 per cent, down by 1 per cent for 2016, while the government's budget deficit target was kept unchanged at 3 per cent of gross domestic product.
China will continue to implement a proactive fiscal policy and a prudent monetary policy, Mr Li said, adding that government would press on with supply-side reforms and take steps to control risks and ensure safety in the financial sector.
"In general, China's policy stance has turned to 'risk control' and 'bubble deflating'. This means that the monetary policy will gradually tighten," said Commerzbank AG economist Zhou Hao in Singapore.
The target for consumer price inflation this year was kept unchanged at 3 per cent.
Said Mr Li: "At present, overall, systemic risks are under control. But we must be fully alert to the build-up of risks."
China should have higher levels of vigilance concerning risks from non-performing assets, debt defaults, shadow banking and Internet finance, he said.
At present, overall, systemic risks are under control. But we must be fully alert to the build-up of risks.Premier Li Keqiang
"We will ensure order in the financial sector and build a firewall against financial risks," he said.
The finance ministry pledged yesterday to clamp down on local government debt risk.
China's debt-to-GDP ratio rose to 277 per cent at the end of last year from 254 per cent the previous year, with an increasing share of new credit being used to pay debt-servicing costs, according to a UBS note.
Chinese banks doled out a record 12.65 trillion yuan (S$2.5 trillion) of loans last year. Recent data shows that new loans hit 2.03 trillion yuan in January, the second-highest ever.
Said Mr Li: "We will apply a full range of monetary policy instruments, maintain basic stability in liquidity, see that market interest rates remain at an appropriate level, and improve the transmission mechanism of monetary policy."
China is also looking to shutter more "zombie" enterprises, or firms with inefficient surplus capacity and saddled with debt.
The National Development and Reform Commission said that it would shut or stop construction of coal-fired power plants with capacity of more than 50 million kilowatts.