Caution on reform, growth remains key objective

The Government Work Report, delivered by Premier Li Keqiang on Saturday to the top legislature, confirmed that economic growth remains the government's key objective. It emphasized the objective of doubling the 2010 GDP and per capita personal income levels by 2020 and called for average annual GDP growth of at least 6.5 percent over the next five years. Accordingly, the target for 2016 was set at 6.5-7 percent, down from about 7 percent for 2015.

Painful reforms such as shutting down unprofitable State-owned enterprises are easier amid solid growth. But 6.5 percent is an ambitious growth target that will require significant macroeconomic policy stimulus, given the subdued prospects for organic growth drivers such as exports and private investment. It may detract from pursuing the more painful, yet necessary, reforms and reduce the appetite for reining in credit growth and reducing excess capacity. This is a pity because growth of around 6 percent is sufficient.

In any case, macroeconomic policy will be used to support growth, including issuance of special local government bonds and use of some fiscal savings from recent years.