China signals 'new normal' with lower annual growth target

China signals 'new normal' with lower annual growth target
Chinese President Xi Jinping sits as Premier Li Keqiang stands next to him during the opening of the annual full session of the National People's Congress, the country's parliament, at Great Hall of the People, in Beijing, March 5, 2015.

BEIJING - China on Thursday announced an economic growth target for this year of around 7 per cent, signaling its lowest rate of expansion for a quarter of a century, and said it would increase government spending to support the slowing economy.

Speaking at the opening of China's annual parliamentary meeting, Premier Li Keqiang vowed to fight corruption and pollution, and stressed the need for more painful reforms to put the world's second-largest economy on a more sustainable footing after three decades of breakneck growth.

"The downward pressure on China's economy is intensifying," Li told around 3,000 delegates gathered at the Great Hall of the People to the west of Tiananmen Square in the heart of Beijing.

"Deep-seated problems in the country's economic development are becoming more obvious. The difficulties we are facing this year could be bigger than last year. The new year is a crucial year for deepening all-round reforms."

The opening of the annual full meeting of the largely rubber-stamp National People's Congress comes less than a week after China cut interest rates for the second time in three months, underscoring the growth challenges faced this year.

Grappling to sustain an economy weighed down by a cooling property market, high debt levels and excess factory capacity, Beijing plans to lift government spending to 17.15 trillion yuan ($2.74 trillion) in 2015, an increase of 10.6 per cent on 2014.

That will mean increasing the budget deficit to 1.62 trillion yuan, or around 2.3 per cent of GDP, compared with 2.1 per cent last year.

INDUSTRIAL REFORM

Li said China would push ahead with reforms of state-owned enterprises and move to liberalize its banking system and financial markets, as it seeks to restructure its economy to boost consumption at the expense of exports and investment.

"In order to defuse problems and risks, avoid falling into the 'middle income trap', and achieve modernization, China must rely on development and development requires an appropriate growth rate," said Li.

"At the same time, China's economic development has entered a 'new normal'."

China's economy grew 7.4 per cent last year, roughly in line with the government's growth target of around 7.5 per cent and robust by global standards, but still the slowest in 24 years.

With deflationary pressures mounting in China - annual consumer inflation fell to a five-year low of 0.8 per cent in January - Li said the government would also lower its 2015 inflation target to around 3 per cent from 3.5 per cent in 2014.

A key plank of China's reform agenda is overhauling its industrial sector by tackling overcapacity in polluting heavy industries and moving manufacturing up the global value chain.

"Manufacturing is traditionally a strong area for Chinese industry," said Li.

"We will implement the 'Made in China 2025' strategy, seek innovation-driven development, apply smart technology, strengthen foundations, pursue green development and redouble our efforts to upgrade China from a manufacturer of quantity to one of quality."

With Communist Party leaders ever mindful of social stability, Li said China aimed to create more than 10 million new jobs in 2015 and would ensure the jobless rate does not exceed 4.5 per cent.

While focusing heavily on the economy, Li also vowed to fight pollution and corruption, two highly sensitive topics that have become lightning rods for public discontent.

"Our tough stance on corruption is here to stay," he said. "Our tolerance for corruption is zero, and anyone guilty of corruption will be dealt with seriously."

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