HONG KONG -- When China's lawmakers gather in Beijing next month to discuss national policy for the upcoming year, most observers will be watching to see what kind of growth forecast Premier Li Keqiang will announce when he delivers his government work report at the opening session.
Market players will also be focused on whether the roughly 10-day meeting of the 12th National People's Congress, which kicks off on March 5, will see Beijing introduce near-term stimulus measures to ease the impact of the country's slowdown, in parallel with structural reforms aimed at addressing manufacturing overcapacity and other problems.
China's constitution defines the National People's Congress as the nation's highest organ of state power. In practice, however, it takes its cues from the Communist Party of China. Held almost concurrently is the Chinese People's Political Consultative Conference, the country's top advisory body and also controlled by the Communist Party.
The government appears likely to set the gross domestic product growth target for 2016 in the 6.5% to 7% range, according to remarks made Feb. 3 by a top official in the National Development and Reform Commission, the country's premier economic planning body. That would mark the second straight year in which the growth target has been lowered.
Growth came to 6.9% for 2015; the target was "around 7%." Last November, President Xi Jinping said the annual growth rate should be no less than 6.5% over the next five years. As such, it is unlikely the government will trot out a number lower than 6.5%.
An overly pessimistic outlook by the world's second-largest economy could spook global investors. Beijing is therefore likely to offer something between 6.5% and 7%, which would probably bring a sense of relief to markets.
While the government is unlikely to stop promoting supply-side reforms, an overly heavy focus on painful domestic measures could chill the economy. The leadership appears to be well aware of this. At December's Central Economic Work Conference, where Chinese leaders set economic policy for 2016, officials stressed that a stable macroeconomic environment is a prerequisite for structural reform.
The expectation is that at the National People's Congress, the government will allow the budget deficit to increase and will reduce the tax burden on companies while greenlighting fiscal spending for infrastructure and other purposes. Once those details are finalized, stock markets are likely to get a boost from expectations that the new measures will take effect soon.
There is another reason -- a seasonal factor -- to expect Chinese stocks to move higher. Every year, around the time that the congress is held, shares in companies related to infrastructure, national security and environmental protection tend to begin rising on expectations that they will benefit from government measures.
Topics of discussion at this year's gathering will likely include the "Internet Plus" plan, which aims to boost local economies and traditional industries by using the Internet. That means Internet stocks may attract investor attention this time around. Shares in companies seen benefiting from the "Made in China 2025" plan, an initiative to promote the advancement of China's industry, might also be worth paying attention to.
Also in the spotlight will be how much longer People's Bank of China Gov. Zhou Xiaochuan will stay in his post, given that his tenure began as long ago as 2002. The PBOC took the market by surprise last year when it decided to cut interest rates shortly before the National People's Congress kicked off. Recently, however, PBOC Deputy Gov. Yi Gang said excessive monetary easing could create asset price bubbles and send the yuan lower.
The market consensus is that neither a rate cut nor a reduction in the reserve-requirement ratio is forthcoming.