China to target around 6% growth in 2020, step up state spending

A trade deal with the US could ease pressure on exporters but more policy steps are needed to counter weak demand at home and abroad. (AP)
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Updated 14 December 2019

China to target around 6% growth in 2020, step up state spending

  • The central bank is concerned to avoid fanning property speculation and inflation expectations

BEIJING: China plans to set a lower economic growth target of around 6 percent in 2020 from this year’s 6-6.5 percent, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said.

Chinese leaders are trying to support growth to limit job losses that could affect social stability, but are facing pressure to tackle debt risks caused by pump-priming policies.

The proposed target, to be unveiled at China’s annual parliamentary session in early March 2020, was endorsed by leaders at the annual closed-door Central Economic Work Conference this month, according to three sources with knowledge of the meeting’s outcome.

“We aim to keep next year’s growth within a reasonable range, or around 6 percent,” said a source who requested anonymity.

Top leaders pledged to keep economic policies stable while making them more effective to achieve growth targets in 2020, state media said on Thursday.

Next year will be crucial for the ruling party to fulfill its goal of doubling gross domestic product (GDP) and incomes in the decade to 2020. Economic growth of nearly 6 percent next year could be enough to meet that goal, given the economy is expected to expand by about 6.2 percent this year, policy insiders said.

Officials at the National Development and Reform Commission and the Ministry of Finance were not immediately available for comment on Saturday.

The government aims to boost infrastructure investment by allowing local governments to issue more special bonds next year, but there is less room for tax cuts, the sources said.

The annual budget deficit could rise from this year’s 2.8 percent of GDP, but is likely to be kept within 3 percent, they said.

Local governments could be allowed to issue special bonds worth some 3 trillion yuan ($426.20 billion) in 2020 to fund infrastructure projects, including 1 trillion yuan front-loaded to this year, they said.

“Fiscal policy will provide a key support for the economy,” said one source.

The central bank may ease policy further to encourage lending and lower corporate funding costs, but it wants to avoid fanning property speculation and inflation expectations after consumer inflation hit a near eight-year high in November, the sources said.

Beijing has unveiled a raft of pro-growth measures this year, cutting taxes and fees and letting localities issue 2.15 trillion yuan in special bonds, alongside cuts in reserve requirements and lending rates to boost credit.

But top leaders have ruled out aggressive stimulus for fear of pushing up debt levels.

A trade deal with the US could ease pressure on Chinese exporters, but more policy steps are needed to counter weak demand at home and abroad, policy insiders said.

The US and China cooled their trade war on Friday, announcing an agreement that reduces some US tariffs in exchange for what US officials said would be more Chinese purchases of American farm products and other goods.

Leaders at the meeting listed preventing financial risks as a key priority for 2020 and called for keeping the debt-to-GDP ratio largely stable.

They also pledged to prepare “contingency plans” to cope with growing global volatility and risks.

But any sharper slowdown could put more pressure on small firms, which could in turn hit smaller banks — the most vulnerable part of the banking sector, policy insiders said.

Private companies have defaulted on bond payments at a record rate this year, while capital investment has slowed. A rare state seizure of a regional bank earlier this year and state rescues of lenders have also sharpened concerns about the health of small banks.

“Small firms will continue to face big pressure next year, and that could affect the financial sector,” said one insider.

Saudi Arabia calls ‘urgent’ meeting of oil producers

Updated 02 April 2020

Saudi Arabia calls ‘urgent’ meeting of oil producers

  • Crude prices jump after move, which Kingdom says is part of efforts ‘to support global economy in these exceptional circumstances’

DUBAI: Saudi Arabia has called an urgent meeting of the Organization of Oil Exporting Countries and other oil exporters, to discuss restoring the “desired balance” in global energy markets.

The move — which prompted a big jump in the price of oil on global markets — is part of the Kingdom’s “constant efforts to support the global economy in these exceptional circumstances, and in appreciation of the request of the President of the USA, Donald Trump, and the request of friends in the USA,” according to a statement published by the official Saudi news agency.

Global oil prices reacted immediately. Brent crude, the Middle East benchmark, increased by 20 percent, taking it back above $30 a barrel.

The price of crude has been under pressure as a result of collapsing demand due to the coronavirus crisis, and Saudi Arabia’s determination to win market share from American and Russian producers.

During an OPEC meeting in Vienna last month, the Kingdom offered to implement further cuts in oil production but Russia refused to participate.

“Saudi Arabia would like to underscore its efforts during the past period to restore balance in the oil market, as it drew support for that from 22 counties of the OPEC+, but it was not possible to reach an agreement or get consensus,” according to the official Saudi statement.

Oil industry expert Daniel Yergin said: “This represents a recognition of how much the world has changed for oil in a single month as demand falls away so dramatically, and the impact of Donald Trump becoming personally engaged.”

The Saudi call for talks came after a hectic round of communications between the US, Russia and the Kingdom.

In a message posted on Twitter after the Saudi announcement, Trump wrote: “I just spoke to my friend Mohammed bin Salman, crown prince of Saudi Arabia, who spoke with President Putin and I expect and hope that they will be cutting back approximately 10m barrels, and maybe substantially more, which will be great for the oil and gas industry.”

However, officials in Riyadh downplayed any suggestion of a commitment to specific reductions in the levels of oil output. There is no indication yet of when the “urgent” meeting of OPEC and others might happen, nor what will be on the agenda, they said.

President Vladimir Putin denied that he had spoken to the crown prince about the price of oil. Novosti, the official Russian news agency, said there was no such conversation, but added that the president had discussed falling oil prices with other OPEC members and with the US.

“The Americans are worried because of their profitability for shale oil production,” said Putin. “This is also a difficult test for the American economy.”

This week, Saudi Arabia produced more oil in a single day than at any time in its history, with 12 million barrels flowing from pumps at Saudi Aramco, the world’s biggest oil company.