China targets 7.5% economic growth for 2014

Li's speech to the annual session of the National People's Congress, which meets to approve policies decided by the ruling Communist party, highlighted the authorities' plans to shift the economy to a more sustainable model.

"We must keep economic development as the central task and maintain a proper growth rate," Li said.

"On the basis of careful comparison and repeatedly weighing various factors, as well as considering what is needed and what is possible, we set a growth target of around 7.5 per cent."

China's three decades of rapid industrialisation have transformed its economy and seen incomes soar, but have also brought severe environmental consequences including smog that regularly blankets cities.

Li said pollution was a "red-light warning" against inefficiency, as he sought to address public concerns on issues from poisoned waterways to food safety.

"We will declare war against pollution and fight it with the same determination we battled poverty," he said.

Chinese authorities have repeatedly pledged action to improve the environment in recent months, but experts warn that implementation will be key.

In recent years air pollution indicators have been published more widely, but the country relies heavily on coal for energy and accounts for around half the world's consumption of the fossil fuel.

"The good thing about China is that, because it's very top-down, the leaders can set these stringent targets," said Alvin Lin, Beijing-based China climate and energy policy director with the Natural Resources Defense Council.

"And we don't know whether or not ultimately it will succeed, but there's going to be a lot of machinery and processes that are put in place," he said ahead of Li's report.

 

- Prosperity key to legitimacy -

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The world's second-largest economy grew 7.7 per cent in 2013, the same as in 2012 -- which was the slowest rate of growth since 1999.

Rising prosperity is a key part of the Communist Party's claim to legitimacy in China, and the government usually sets a conservative economic growth target that it regularly exceeds.

The figure is closely watched by analysts for insight into the leadership's thinking about the economy and how they expect it to perform, as well as what policy initiatives they intend to pursue.

Keeping the target unchanged from last year suggests the government wants to stress stability as it carries out promised economic reforms, analysts said.

"On one hand it serves as a signal to stabilise expectations, while on the other it shows policymakers have confidence in maintaining stable momentum in the overall economy," said Ma Xiaoping, Beijing-based economist for British bank HSBC.

"The policy focus this year is to promote reforms and implement reform policies," she told AFP. "As long as the economy is not showing signs of an accelerated slowdown, there won't be any significant changes in the policy environment."

The 7.5 per cent goal came after soft recent economic data, with a key manufacturing index slipping to an eight-month low in February, the government said Saturday.

"We believe China can achieve 7.5 per cent GDP growth this year," economists with Bank of America Merrill Lynch said in a research note on the target, despite what they described as recent "negative news and data" such as manufacturing declines.

 

- Consumption new focus -

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China's leadership says it wants to transform the country's economic growth model away from an over-reliance on often wasteful investment, and instead make private demand the driver for the country's future development.

They expect the change to result in slower but more sustainable rates of expansion.

"This target... will boost market confidence and promote economic structural adjustment," Li said in the speech, his first work report since becoming premier at last year's NPC. 

"Boosting domestic demand is both a major force driving economic growth and an important structural adjustment," he added.

China's once regular annual double-digit growth rates have been on a slowing trend, and the 2013 result meant GDP growth had been in single figures for three consecutive years for the first time since 2002.

The NPC comes after a major Communist Party meeting known as the Third Plenum in November that flagged economic reforms including allowing the market to play a "decisive" role in the economy.

"Reform has brought us the greatest benefits," Li said, adding there would be more changes to the financial sector, such as allowing financial institutions greater authority to set interest rates.

China began allowing banks to decide their own lending rates in July last year, but still sets deposit rates by administrative order.

Li vowed to keep China's yuan currency "basically stable at an appropriate, balanced level", while expanding the band within which it is allowed to float against other units and moving towards capital account convertibility.

China's financial authorities allow the yuan, also known as the renminbi, to move up or down one per cent daily on either side of a mid-point they say is set by polling market makers.