The Chinese authorities for the first time in many decades not to set a target for GDP growth for the year, to be working annual report to the Premier of the state Council of China Li Keqiang. This year efforts will be focused on poverty reduction and on providing jobs and overcoming of the crisis caused by the epidemic.
On the back of aggressive measures to pumping the economy with liquidity, which used Western countries to exit the crisis, Chinese steps may seem modest. However, respondents Sputnik Russian and Chinese experts claim that China has chosen the optimal solution for their problems.
Of the predictions of the experts about what to expect from «two sessions» true unconditionally is only one: this year China sets a target growth rate. Premier Li Keqiang in his report admits that China's economy is facing great uncertainty, both from the standpoint of domestic epidemiological situation and from the point of view of external factors – the development of the epidemic in rest of the world, the fall in world demand, reduction of world trade. In such conditions, virtually all of the growth drivers of the Chinese economy — whether for domestic consumption or export – is under threat. Therefore, to predict that GDP growth is now extremely difficult.
Many other parameters of the targets were much more modest expectations. The budget deficit increased only to 3.6%, while Chinese and Western analysts have tipped him a deficit of 6% or more. This year we plan to create 9 million jobs – it is 4 million less than last year. However, the level of unemployment to be maintained at about 5.5%. Close to the expectations of the experts, defense spending: they will grow by 6.6% (although the expected increase to 7%). The Chinese Premier will also focus on helping small and medium businesses and self-employed who were in a difficult position because of the epidemic. Li Keqiang asked banks to increase lending to small and medium business by 40%. M2 money supply (cash «plus» checks, demand deposits «plus» term deposits), as the Prime Minister said, will increase this year much stronger than last year.
A number of experts, including a former chief economist of Goldman Sachs Jim O'neill noted that the measures to stimulate the economy taken by China, modest. According to IMF estimates, the fiscal stimulus to overcome the crisis (cuts in VAT, raising the ceiling of non-taxable income of individuals, vacations for contributions of enterprises to social insurance funds, etc.) China has $ 2.6 trillion yuan, equivalent to 2.5% of GDP. For comparison, the US has provided to combat the current crisis 2.3 trillion dollars or 11% of GDP, Germany – 156 billion euros, or 4.9% of GDP, and if we applied a variety of state guarantees for business, the incentives will exceed 20% of GDP.
But China has already passed through such measures in 2008, highlighting the unprecedented size of the financial aid package equal to 12% of GDP. And this has led to fundamental imbalances in the economy and the overheating of the credit market.
China now accounts for these errors and operates according to the specificity of their own economic situation, said in an interview with Sputnik head of the program «Russia in the Asia-Pacific region» Moscow Carnegie Center Alexander Gabuev.
«I think the incentive is sufficient. China also tries to take into account the epidemiological situation and, at the same time to prevent rising unemployment and social unrest. It is also important to avoid excessive growth of the debt burden. Obviously, to solve all three problems completely fail. So here we need some proportion. And not flooding the economy with money, and quite a tidy investment in new infrastructure, primarily telecommunications, data centers, charging stations for cars. To do this all you need through debt instruments and the creation of infrastructure investment that will be monitored by political banks. In General, it is a normal step», — said Gabuev.
According to him, the rejection of targets for GDP growth confirms the commitment of the Chinese authorities to the following principle: to focus not on nominal economic performance and to transform the economic model in General, maintaining macroeconomic stability by all possible means. Chinese authorities had previously indicated that it is not as important as the rate of growth as its quality. Now in the economic policy of the PRC there are other priorities, says Gabuev.
«I wish I'd paid attention to the goal of eradicating poverty. The fact that China next year, as promised by XI Jinping, is to build a society of prosperity, the average passenger. What it is not quite clear due to the lack of clear criteria. Apparently, the criterion is the total eradication of poverty in China. At the beginning of last year, China had 16.6 million of the poor. And, apparently, this year poverty according to the Chinese statistics will be finally eradicated, and it will be filed as the main criterion that a society built passenger. It is also very important macroeconomic challenge for this year», — the expert believes.
Focus on the real economy and improving the lives of people and leads to the set of measures that take the Chinese authorities. Western countries, including USA, to patch holes in the economy a large amount of liquidity. In the case of U.S. this scheme still works because the practice of including the printing press, it has repeatedly been tried out by Washington. China is on the path to more fundamental transformations, Sputnik says the expert of the Beijing people's University UNCSW bian (Bian Yongzu).
«the Chinese economic development is not the same as in other countries. The PRC government can use more resources and funds to promote economic development. Take the example of the United States. They only produce extra cash, or provide subsidies for companies. Such measures can only partially help economic growth and stability. After all, economic development depends on the overall macroeconomic situation. And here all is liquidity. Important and the business climate, increasing incomes, sustainable policy. Chinese authorities stimulate and develop the economy in all fields. For example, support of small and medium enterprises is not only in Finance but also in improving the business climate, multidimensional support. The ability of the government play a vital role in the economic development of the country in managing the economy. Chinese authorities have strengthened their capabilities, but, on the other hand, deliberately restrict them to provide more space for businesses to market players to develop more smoothly. From the point of view of financial support of Chinese policy is, indeed, reasonable. But excessive financial pumping can bring negative effects», — considers bian UNCSW.
China can not afford just to enable the printing press to Finance the budget deficit. In anticipation of the «two sessions» Ministry of Finance of China and the Central Bank debated how to Finance the costs associated with stimulating measures. The Finance Ministry proposes to resort to quantitative easing: repurchase of Central Bank special Treasury bonds at a zero rate. The Central Bank pointed out that this practice is extremely dangerous, and, moreover, even formally prohibited by Chinese law. The result from politics «printing machine» he refused, resorting to a more cautious debt financing mechanisms.
Not to say that China completely abandoning financial incentives. For large-scale projects «new infrastructure» designed to support growth, bonds are used by local governments. For the first six months of the local government will issue bonds of almost 3 trillion yuan. For comparison: last year, all such securities were issued by 4.36 trillion yuan. In addition, the Chinese authorities decided to issue special Treasury bonds to overcome the effects of the epidemic. But production volume will be limited, so as not to inflate uncontrollably credit load. In 2020 they will attract only 1 trillion yuan.