China Signals More Tax Relief as Li Says GDP Goal Won’t be Easy
- Government set a GDP goal of ‘around 5.5%’ for this year: Li
- Tax and fee cuts are most effective in supporting economy
China’s Premier Li Keqiang said the economic growth target for this year will be a challenge to meet and will require additional support measures, including further possible tax relief.
Li, who confirmed this is his last year in the post, defended the growth goal despite a number of risks clouding the outlook.
“Achieving a growth rate of around 5.5% is actually achieving stability at a high level, which is equivalent to progress and won’t be easy,” Li told reporters in Beijing Friday at the conclusion of the annual National People’s Congress. “There must be support from macro policies.”
The government’s growth target is the lowest in more than three decades, yet above consensus forecasts and far higher than the International Monetary Fund’s projection of a 4.8% expansion. Some economists are skeptical that the target could be met, which would be unusual for China.
China Targets Around 5.5% Growth
The economy has almost never missed its target
Li, who has been premier since 2013, said tax and fee cuts are the most effective in providing support to the economy, a reason why the government is implementing 2.5 trillion yuan ($395 billion) of relief this year.
“Based on our experience, tax and fee cut has the most direct impact” on the economy, Li said. The benefits are greater than other options, like large-scale investment and consumer vouchers, he said.
If the tax rebates are effective, “we will step up effort on that front,” he added.
Li’s comments answered a long-held question among investors about why the government hasn’t introduced policies such as spending vouchers and unemployment subsidies, like countries in the West and places like Hong Kong have done, to stimulate sluggish consumption, said Jacqueline Rong, deputy chief economist for China at BNP Paribas SA.
“China has had a very different way of thinking — it aims to ensure people’s income via preserving job providers rather than providing for people out of jobs,” she said. Chinese households’ tradition of saving money and Covid-related curbs on the consumption of services mean handing out stimulus checks “may not have the same effect in China as it does in the West,” she added.
The world’s second-largest economy rebounded from its pandemic slump to grow 8.1% last year, though the momentum has slowed to half that pace in the final quarter, dragged down by a housing market slump and weak consumption. The outlook is deteriorating amid heightened geopolitical tensions related to Russia’s invasion of Ukraine, a spike in oil prices and domestic coronavirus cases hitting the highest in years.
“This year we indeed face new downside risks and challenges, let alone that the complex environment is changing with rising uncertainties,” Li said.
Those challenges will test Beijing at a time when stabilizing growth is a top priority for the country’s leaders in a politically significant year. The Communist Party is bracing for a twice-in-a-decade congress later this year at which President Xi Jinping is expected to make an unprecedented bid to stay on as leader for a third term.
Li said the economy will be able to “overcome difficulties,” adding that “we will be able to achieve all the major goals and tasks for economic and social development set for the whole year.”
Li also spent some time addressing concerns around the job market. The economy will see 16 million new urban job seekers this year, and ensuring their employment will require greater policy support, new avenues for jobs to be created, and training, he said.
“Monetary and fiscal policies will need to revolve around the goal of achieving our employment target,” Li said. If China can achieve maximum employment, it will be able to reach its so-called potential growth rate, he said.
At the opening of the NPC, Li vowed to “step up implementation” of monetary policy — suggesting more easing such as interest rate cuts — and support the housing market. The government is also boosting fiscal spending 8.4% this year, which would be the fastest pace in four years.
Some long-term goals have been put on the back burner at least for this year. For example, Beijing didn’t set a target for “energy intensity,” a move that should give policy makers more flexibility to prioritize growth over controlling pollution.
The premier said cooperation between China and the U.S. is beneficial for the world, and economic competition should be fair and healthy. Trade between the two nations would increase if the U.S. removes export restrictions on China, he said, responding to a question on the U.S.’s ban of semiconductors to China.
Li said the two nations shouldn’t decouple and China is ready to work with the U.S. to expand common ground and pursue interests for the long run.