China omitted a 2020 economic growth target for the first time and pledged government support for the economy in Premier Li Keqiang's work report on Friday, launching the country's annual parliament meeting. It is the first time that China has not set a target for gross domestic product (GDP) since the government began publishing such goals in 1990.
The world's second-biggest economy contracted 6.8% in the first quarter from a year earlier, shrinking for the first time in decades, as the outbreak of the new coronavirus, which started in the central Chinese city of Wuhan, paralysed production and hit spending. Ahead of the National People's Congress, the week-long meeting of the largely rubber-stamp parliament, China's top leaders have promised to step up stimulus to bolster the virus-ravaged economy amid rising worries that job losses could threaten social stability.
China is targeting a 2020 budget deficit of at least 3.6% of GDP, above last year's 2.8%, and fixed the quota on local-government special bond issuance at 3.75 trillion yuan ($527 billion), up from 2.15 trillion yuan, according to Li's report. China will also issue 1 trillion yuan in special treasury bonds for the first time this year.
Local government bonds could be mainly used to fund infrastructure projects, while special treasury bonds could be used to support firms and regions hit by the coronavirus outbreak, for subsidies to spur consumption or for boosting the capital structure of small banks, analysts say.
China has front-loaded a quota of 2.29 trillion yuan in local government special bonds in 2020. Local governments have also issued 1.2 trillion yuan in special bonds in the first four months, according to the finance ministry. Fiscal policy will be more proactive and monetary policy more flexible, Li said in his report, adding that growth in M2 - a broad gauge of money supply - and total social financing will be significantly higher this year.
Since early February, the central bank has unveiled a raft of measures from making cheap loans and providing payment relief to firms that have been hardest hit by the virus outbreak, to cutting lending rates and banks' reserve requirements. The People's Bank of China has lowered reserve requirement ratios (RRR) 10 times since early 2018, including three cuts this year. The PBOC has cut its benchmark lending rate - the Loan Prime Rate (LPR), by 46 basis points since August 2019, when it replaced the previous benchmark lending rate with the LPR. The one-year LPR rate is currently at 3.85%.