by Martin on December 16, 2019

China to step down target GDP growth at 6% in 2020, increasing state spending

As the Chinese economy runs on governmental commands and directives, its one of the most crucial aspects – GDP growth – is also subject to annual targets and plans. And the target growth rate has recently been around 6.5-7% annually. However, this years’ plan includes a slightly slower expansion rate at 6%.

On the other hand, the top leaders of the Chinese Communist Party have also agreed on increasing state infrastructure spending that would potentially balance a seemingly sharper economic slowdown.

A decade-long plan to double the GDP

When it comes to economic growth and overall economic policy, the Chinese system works on state commands and plans. In this sense, the Chinese Communist Party has set a decade-long plan that would see GDP, as well as per capita incomes, doubled by the year 2020.

And starting from 2010, this plan was getting closer and closer to fruition. In 2011, the annual GDP growth rate was 9.5% and while it slowly came down to this years’ planned 6.5%, the goal is almost ready. In general, the average GDP growth rate in the decade was somewhere around 7.3% and if the year 2020 reaches 6%, it’ll remain in the same area which is enough to double the country’s GDP.

As the sources suggest, the economic policies that exist today will remain the same while their effectiveness will see a major boost.

The target plan was discussed and endorsed at the annual Central Economic Work Conference this month which, of course, was held behind closed doors. It is expected to be unveiled in March 2020 at China’s annual parliamentary session. But before that, we have to make do with some anonymous sources.

Expanded infrastructure funding

Besides agreeing on a target GDP growth rate, the Conference also discussed the infrastructural projects and their funding. To offset the sharp implications caused by slower economic growth, the government will allow local administrations to boost the money supply next year.

According to sources, the local governments will be able to issue the bonds worth of not more than 3 trillion yuan (around $430 billion). This money will then be used to fund various infrastructure projects all over the country.

On top of that, the central bank is also expected to lower reserve requirements for the banks, as well as interest rates, which will further boost lending and internal investment rates. However, there will be a certain limitation as the government doesn’t want to plunge itself into serious inflation, especially when it nearly reached an eight-year maximum in November.

Another pretty significant agreement made at the Conference was the balancing of the debt-to-GDP ratio. While the 2020’s budget deficit is expected to increase from last years’ 2.8% to around 3%, the officials say that it’s going to be as far as it’s going to get.

At the beginning of this year, the Chinese government introduced a pro-growth economic model with reduced tax rates and other fees, as well as reduced reserve requirements and interest rates. However, while the GDP growth rate certainly reached its planned rate, the Chinese government decided to stop there and not encourage a much stiffer expansion, not to mention a rampant debt crisis.

That’s what the slower growth and increased infrastructure funding plan are all about. And with the new trade agreement with the United States having in place, the national production and export levels are expected to grow even further. But that requires more work and negotiations between the two economically belligerent countries.

By Martin

Martin has been a Trader for 5 years now. He has experience in trading Forex, stocks, and cryptocurrencies. Aside from his trading career, he also worked for a UK news outlet as a web article writer and interviewer for 3 years. His insight on news and brokers have been refining for the past 4 years.

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