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China has cut its growth target for 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.
Key points:
- The Chinese Government has cut its projected growth rates after lower-than-expected growth last year
- Leaders are worried about elevated debt levels and an overheating housing market
- Premier Li Keqiang warns China must be vigilant against economic risks
China aimed to expand its economy by around 6.5 per cent in 2017, Premier Li Keqiang said at the opening of the annual meeting of Parliament.
Its economy grew by 6.7 per cent overall last year, the slowest pace in 26 years.
A lending binge and increased government spending has fuelled worries among China's top leaders about elevated debt levels and an overheating housing market.
China will continue to implement a proactive fiscal policy and maintain a prudent monetary policy, Mr Li said, adding that the Government would press on with supply-side reforms and take steps to control risks and ensure safety in the financial sector.
Premier vows vigilance against risks
"At present, overall systemic risks are under control. But we must be fully alert to the build-up of risks," Mr Li said.
China should have higher levels of vigilance concerning risks from non-performing assets, debt defaults, shadow banking and internet finance, he added.
"We will ensure order in the financial sector and build a firewall against financial risks," he said.
China's debt-to-GDP ratio rose to 277 per cent at the end of 2016 from 254 per cent the previous year, with an increasing share of new credit being used to pay debt servicing costs, according to a recent UBS note.
Chinese banks doled out a record 12.65 trillion yuan ($2.41 trillion AUD) of loans in 2016, and recent data shows that new loans hit 2.03 trillion yuan in January, the second-highest ever.
"In general, China's policy stance has turned to 'risk control' and 'bubble deflating'. This means that the monetary policy will gradually tighten," said Zhou Hao, emerging markets economist at Commerzbank AG in Singapore.
Coal to take back seat
China will push forward with reform of state-owned firms and assets this year, Mr Li said.
The country also planned to shutter more 'zombie' enterprises, or firms with inefficient surplus capacity and saddled with debt.
The National Development and Reform Commission said in a work report released at the opening of the National People's Congress that it would shut or stop construction of coal-fired power plants with capacity of more than 50 million kilowatts.
China will also cut steel capacity by 50 million tonnes and coal output by more than 150 million tonnes this year, the economic planner said.
The Government aims to create more than 11 million new urban jobs this year, even as employment pressure grows.
"This year's target for urban job creation is 1 million more than last year, underlining the greater importance we are attaching to employment," Mr Li said.
Military spending not on the agenda
In a break with past practice, China did not provide a figure for its defence budget at the opening of its annual legislative session.
National People's Congress spokeswoman Fu Ying told reporters the budget would increase around 7 per cent on last year.
However, unlike in past reports, no exact figure was provided in the government budget report released at the Congress' opening session.
China has long chafed at calls from the US and others to be more forthcoming about the goals of its military modernisation program, under which the budget has grown by double digit percentages for most of the past two decades.
Reuters/AP
Topics: business-economics-and-finance, globalisation---economy, defence-and-national-security, steel, industry, coal, china
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