Turf war puts Chinese regional GDP plans at risk

All of China’s 31 provinces, autonomous regions and centrally governed municipalities have set their targeted GDP growth rate at 6% or higher for 2021

  
The supermoon shines over the Central Business District as cars move along a thoroughfare during evening rush hour in Beijing, China, April 7, 2020.

The supermoon shines over the Central Business District as cars move along a thoroughfare during evening rush hour in Beijing, China, April 7, 2020.

REUTERS/Thomas Peter

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

HONG KONG  - Setting growth targets in a pandemic is more art than science. Indeed, the Chinese central government, worried about rising debt stress, may ditch it again this year. Yet most regional governments have set their own goals; in aggregate they aim to boost output by at least 6.8%, according to Breakingviews calculations, which would be the fastest pace since 2017.

Unfortunately the central bank is trying to drain excess liquidity and slow credit growth, while the Ministry of Finance wants to cut back on fiscal support. Something will have to give.

The People's Bank of China hates being held hostage to a national GDP target, which requires the PBOC to ensure economic expansion goes at the proper pace but minimise financial risk – and the latter keeps losing out. Ma Jun, a prominent PBOC adviser, recently called for permanently abandoning GDP goals, arguing they encourage regional governments to borrow senselessly. Last year, Covid-19, an economic wild card, gave China an excuse to ditch the target for the first time in decades.

Local governments, however, have stuck to the plan. Most expect to increase activity by at least 6%. Hubei, where the outbreak was first detected, expects 10% or more. But even allowing for last year’s low base, many struggling provinces will have trouble meeting their goals without help from the centre.

Given PBOC party chief Guo Shuqing’s recent monetary conservatism, that puts the onus on budget outlays. The Ministry of Finance, worried about government debt, is reluctant. The two institutions don’t get along. In 2018, when the central bank clamped down on shadow banking, a central bank adviser bashed the ministry for failing to cushion the blow with spending. In 2019, a finance ministry official struck back, arguing that government deficits should be financed through debt monetisation. The PBOC governor publicly disagreed.

The ministry did pitch in last year, increasing the deficit target to 3.6%, but it might be pared back to 3% in 2021, Reuters reported. The ministry has shown conservatism in other ways, for example by slow-tracking local government bond issuance quotas. If neither side bends, the economy could end up off-target.

CONTEXT NEWS

- China will likely avoid setting a 2021 growth target, dropping the closely watched measure for a second straight year on concerns that maintaining one could encourage provincial economies to ramp up debt, Reuters reported on Jan. 28 citing unnamed policy sources.

- All of China’s 31 provinces, autonomous regions and centrally governed municipalities have set their targeted GDP growth rate at 6% or higher for 2021, according to work reports from local governments issued in recent months. The provinces of Heilongjiang and Hebei were the last two to publish their targets on Feb. 19.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Pete Sweeney and Sharon Lam) ((yawen.chen@thomsonreuters.com; Reuters Messaging: yawen.chen.thomsonreuters.com@reuters.net))

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