Combining reform with growth

The Government Work Report presented by Premier Li Keqiang at the annual session of the National People's Congress on March 5 confirms that the central leadership will start implementing a fairly comprehensive set of reforms this year. The report discusses plans to implement reforms this year to enable the market and private sector to play a larger role in conjunction with a recalibrated role of the government.

The approach to changes in economic policy, however, remains cautious and gradual. First, growth remains the key objective, as the report stresses that "development (that is, growth) remains the key to solving all our country's problems" and that China "must keep economic development as the central task and maintain a proper economic growth rate". Accordingly, the GDP growth target remains unchanged at 7.5 percent.

In the government's terminology, fiscal policy will remain "proactive" and monetary policy "prudent" in 2014, although these labels do not say much about the actual stance. The government's budget aims to keep the official fiscal deficit unchanged at 2.1 percent of GDP. But the total fiscal deficit, including borrowings by local governments from banks and the shadow banking system, is likely to be substantially higher, as it has been in recent years. Of course, it is hard to know how high.