By Kevin Yao and Xiaoyi Shao
BEIJING, March 5 (Reuters) – China provided its strongest
signal yet that it will shift toward balanced and clean economic
growth, promising to reduce the pace of investment to the lowest
in a decade and wage a “war on pollution”.
In a State of the Union style address to China’s annual
parliament meeting that began on Wednesday, Premier Li Keqiang
said Beijing aims to grow the world’s second-largest economy by
7.5 percent this year, the same as last year’s target. Analysts
have said maintaining the target after years of breakneck
expansion signals that Beijing will remain focused on reforms
and rebalancing the economy.
Li said enacting reforms was his first priority even as he
keeps an eye on growth. Idle factories will be shut, and work on
a new environmental protection tax will be sped up to create a
greener and more balanced economy powered by consumption rather
than investment, he said.
“Reform is the top priority for the government this year,”
Li told around 3,000 hand-picked delegates in a cavernous
meeting hall in central Beijing.
“We must have…the mettle to fight on and break mental
shackles to deepen reforms on all fronts.”
To aid the transformation, China’s economic planner, the
National Development and Reform Commission, told parliament that
the government will target 17.5 percent growth in fixed-asset
investment this year, the slowest in at least 10 years.
Investment is the largest driver of China’s economy and
accounted for over half of last year’s 7.7 percent growth by
expanding 19.6 percent, exceeding an 18 percent target.
Analysts welcomed slower investment growth although some
worried about the impact of environmental measures on jobs and
incomes.
“There have been a lot of environmental protection-related
initiatives, but the issue has started to have some negative
impact on people’s livelihood and in the economy,” said Paul
Tang, an economist at Bank of East Asia in Hong Kong. “It is an
area that needs to be addressed.”
Li said the battle against pollution will be waged via
reforms in energy pricing to boost non-fossil fuel power and
cutting capacity in the steel and cement sectors which are the
sources of much air pollution.
But plans to cut 27 million tonnes of outdated steel
capacity this year comprise less than 2.5 percent of total
capacity and will be outstripped by new capacity currently under
construction, although this will be more modern and less
polluting.
The targeted cement closures amounting to 42 million tonnes
comprise less than 2 percent of last year’s total production.
Many steel and cement factories have also been shutting down for
economic reasons, putting China’s willingness to go the extra
mile on pollution into question.
NATURE’S RED-LIGHT WARNING
At a plenum meeting of the ruling Communist Party last
November, China announced ambitious reforms that signalled the
shift from investment- and export-fuelled growth towards a
slower, more balanced and sustained expansion.
Wednesday’s announcements signal that it is well on track,
but moving cautiously.
Li, China’s first premier with an economics doctorate, said
the government would maintain an inflation target of around 3.5
percent for 2014. Broad M2 money supply growth would be kept at
13 percent, also widely expected.
He said authorities would set up a deposit insurance scheme,
a step toward China’s goal of freeing up bank deposit rates. The
scheme would protect depositors as Beijing is concerned some
smaller lenders could go under as banks compete for deposits in
a more open regime.
Li also said the government would push forward reform of the
yuan exchange rate. Convertibility of the yuan on the capital
account would be brought forward, Li said.
The government plans 15.3 trillion yuan ($2.5 trillion) in
budgeted spending in 2014, which would produce a deficit of
about 2.1 percent of GDP, unchanged from the actual shortfall in
2013, the finance ministry said.
Some changes, such as government downsizing or closures of
debt-laden factories in sectors gripped by overcapacity, are
likely to take a back seat to avoid fuelling job losses and
undermining social stability, analysts say.
After thirty years of scorching double-digit economic growth
that lifted hundreds of millions of Chinese from abject poverty,
but damaged China’s natural environment by polluting its air and
water, Beijing clearly wants to change tack.
“Smog is affecting large parts of China and environmental
pollution has become a major problem, which is nature’s
red-light warning against the model of inefficient and blind
development,” Li said.
Yet acutely aware that the reform agenda will be derailed if
the economy slows abruptly, Beijing wants to pursue change at a
gradual pace.
During the parliament meeting, key government ministries and
the central bank will hold a series of press briefings to cover
a wide range of economic and social issues.
Li is scheduled to hold a news conference at the end of the
parliament meeting on March 13.
