(Bloomberg) — China set its lowest economic growth target in more than 15 years as leaders tackle the side effects of a generation-long expansion that has spurred corruption, fueled debt risks and polluted skies and rivers.
The goal of about 7 percent — down from last year’s aspiration of about 7.5 percent — was given in a work report that Premier Li Keqiang will deliver to the annual meeting of the legislature Thursday in Beijing. The inflation target was set at about 3 percent.
Headwinds that include a property slump, excess capacity in industry and disinflation prompted the second interest-rate cut in three months at the weekend. The government has vowed to move away from expansion at all costs as it tries to clean up the nation’s environment and control a debt surge.
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“The government will lower its growth target for 2015 to focus more on the quality than the quantity of growth,” said Nomura Holdings Inc. economists led by Zhao Yang in a note on Feb. 27.
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“While reiterating that economic development is its primary task, we expect the NPC to also take a hard line on anti-corruption, committing to its clean governance efforts.”
Li’s work report, which opens the meeting of the National People’s Congress, is his second since the 59-year-old was named premier toward the end of 2013’s legislative gathering. Along with President Xi Jinping, the pair are seeking to increase efficiencies and strengthen market forces.
Policymakers are trying to balance the need to cushion the economy’s slowdown with monetary and fiscal stimulus against longer-term goals.
They’re seeking to increase the role of private business, promote innovation and reshape the fiscal framework as they shift the economy from reliance on debt-fueled investment toward greater consumption and services.
Li has said a slower expansion is tolerable as long as enough jobs are created. Even after growth slowed to 7.4 percent last year, the weakest pace since 1990, the nation created 13.2 million new urban jobs, exceeding a target of 10 million and the previous year’s 13.1 million.
The goal of about 7 percent compares to the International Monetary Fund’s forecast of a 6.8 percent expansion this year and the World Bank’s 7.1 percent estimate.
The interest-rate cut announced Saturday reflected deepening concerns over the economy’s slowdown. The People’s Bank of China will cut deposit and lending rates again next quarter, according to economists surveyed by Bloomberg.
The global easing wave comes as the Federal Reserve edges closer to increasing interest rates, a move that would draw funds away from emerging markets.
The government last targeted an expansion of “about 7 percent” in 1999. China ended up achieving 7.6 percent growth that year.
China also said it is planning for a wider budget deficit this year as the government adds fiscal fuel to monetary stimulus to cushion the economy’s slowdown while risks such as a local- government debt binge are reined in.
The government projects a budget shortfall of 1.62 trillion yuan ($258 billion) in 2015, the Ministry of Finance said Thursday. That amounts to about 2.3 percent of gross domestic product, it estimated.
China’s central government is assuming some of the debt incurred by local-government financing vehicles as it reshapes its fiscal framework. Li last week called for more active fiscal policy, while the central bank on Saturday announced its second interest-rate cut in three months.
Local authorities set up thousands of funding units to finance projects from sewage systems to subways after a 1994 budget law barred them from issuing notes directly. Their fundraising helped regional liabilities jump 67 percent from the end of 2010 to 17.9 trillion yuan as of June 2013.
LGFVs’ bond sales almost doubled last year to 1.5 trillion yuan, data compiled by Bloomberg show.
The government amended the Budget Law last year, stipulating all government borrowings need to be brought into the fiscal plan. The Finance Ministry is reviewing local debt to decide which part will be covered by fiscal funds.