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The Nikkei View

China faces challenging times as it forgoes GDP target

Beijing should heed market's warning on Hong Kong security law

Chinese President Xi Jinping, left, and Premier Li Keqiang applaud during the second plenary session of China's National People's Congress at the Great Hall of the People in Beijing, on May 25   © AP

Chinese Premier Li Keqiang revealed at the annual session of the National People's Congress that the government will not be setting an economic growth target for this year.

The GDP announcement is one of the highlights of the annual session of the NPC, China's parliament, which in a normal year begins in early March. But this is no normal year, and skipping the announcement of the growth target betrays just how much uncertainty the Chinese leadership is feeling toward the days ahead.

The novel coronavirus, which spread from China to the world, has indeed disrupted the global economy and trade.

Li laid out China's achievements in the fight against the infectious disease. But he also touched on the shortcomings in the country's emergency response.

From an economic perspective, it is understandable that Beijing is sticking to the pragmatic goal of overcoming the nation's current slowdown first.

China has been burned before after setting unrealistic targets. Lofty goals were announced during the country’s years as a socialist planned economy, regardless of the realities on the ground.

But at the same time, this makes it significantly harder for China to reach its 2020 goal of doubling gross domestic product from a decade ago. This threatens the image of China as the future driver of the global economy, posing a major challenge for the leadership team under President Xi Jinping.

The Chinese economy contracted by 6.8% in the January-March quarter from a year earlier. Economic activity has been recovering gradually since April, after the outbreak passed its peak in China. But various restrictions designed to curb the virus remain in place, hindering industrial output and consumption.

China's efforts to revive the economy have included government spending, tax cuts, flexible monetary policies and support for new industries. Regional governments will be allowed to issue more infrastructure bonds, as the central government turns a blind eye to the expanding fiscal deficit and mounting debt for now.

For the first time in 13 years, 1 trillion yuan ($140 billion) in special bonds -- debt that does not count toward the fiscal deficit -- will be issued.

Still, employment has suffered. With more than 8.7 million new college graduates set to join the workforce this summer, China urgently needs to stabilize its relationship and trade ties with the U.S. in order to create jobs. Li in his speech stressed that Beijing remains committed to the "phase one" trade deal signed with Washington in January. Many are keeping a close eye on this promise, given its implications for the world economy.

Meanwhile, China said it will boost defense spending by 6.6% in 2020. Though this was a smaller increase than the 7.5% jump in 2019, it nevertheless raises the total to a record high of almost 1.27 trillion yuan. Critics question China's push to bolster the military despite its economic troubles, and despite other countries still scrambling to contain the coronavirus.

Beijing also has announced plans for new national security legislation that would ban acts of secession, treason and foreign interference in Hong Kong, in response to pro-democracy protests that began there last year. The proposal, which took the world by surprise, risks stoking further dissatisfaction in the city and damaging its free market economy. Beijing would do well to consider what the market was trying to say when it sent Hong Kong stock prices plummeting following the announcement of the legislation.

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