Thursday, March 24, 2011

Chinese Government Key Targets and Work Plan for this Year

In our previous article China's 12th 5-Year Plan and Government Work Report, we mentioned that Chinese premier Wen Jiabao has outlined his Work Plan for 2011 following the 12th 5-Year Plan in his Government Work Report that released on 5 March 2011. While the 12th 5-Year Plan is only the initial part (Part I) of the Government Work Report, we are now going to introduce the 2011 Work Plan which is the second part (Part II) of the report and is extremely helpful for all of you to identify possible Chinese investment opportunities in this year.

Here are the details of the 2011 Work Plan:

Complex Situation in 2011:

China is now facing an extremely complex situation for development in the year 2011. Expect global economy should continue to recover slowly, however, the foundation for economic recovery is not solid. Economic growth in developed economies is still weak, their unemployment rates remain persistently high, and some economies are still in troubles under sovereign debt crisis. Main developed economies have also further implemented monetary easing policy, thus causing global liquidity to increase significantly, and making the international prices of major commodities and the exchange rates of major currencies more and more volatile. In addition, pressures of asset bubbles and inflation have been increasing in emerging market economies, protectionism continues to heat up, and competition among international markets has become more intense. All of these will make macroeconomic control in China more difficult.

Key Targets in 2011:

(1) GDP growth rate target is set to around +8% YoY in 2011, the same target for that in 2010. Remark: this +8% target perfectly matches with our own 2011 China GDP target.

(2) CPI target is set to around +4% YoY in 2011, up 1% point from 2010. Manage inflation expectations and pay more attention to maintaining stability of overall prices level. Remark: See also our 2011 China CPI target.

(3) Create over 9 million new jobs in urban areas. Maintain the registered unemployment rate in urban areas at 4.6% or lower. Main policy consideration is to guide all sectors to focus their works on accelerating economic restructuring, upgrading the quality and efficiency of development, increasing employment, improving people's well-being and also promoting social harmony.

(4) Implement a proactive fiscal policy to maintain the fiscal deficit and size of government bonds at appropriate levels. Target a fiscal deficit of RMB 900 billion in 2011, a decrease of RMB 150 billion over last year, thus lowering the deficit level to around 2% of GDP. Out of this budgeted RMB 900 billion deficit, RMB 70O billion will be for central government, and RMB 200 billion will be for issuing bonds on behalf of local governments so as to be included in the budgets of local governments.

(5) To compress general expenditures, and strictly control projects of office buildings for the Communist Party and government bodies. To lower administrative costs by maintaining the budgets for various areas, including traveling abroad, purchasing and operating costs of motor vehicles, and also official entertainment costs at their present levels (i.e.: zero growth).

(6) Continue to implement structural tax reductions and also reinforce tax collection. Remark: see also New Residential Property Taxes in Shanghai and Chongqing.

(7) Audit and control debt level of local governments. Set up a standardized mechanism to finance local governments through issuing bonds.

(8) To implement prudent monetary policy in 2011. Target to increase M2 (broad money supply) by +16% YoY in 2011. Remark: see also No more Loose Monetary Policy in China.
In fact, China M2 was increased significantly by +19.7% YoY in 2010.

(9) Strive to optimize the credit structure in 2011. Guide commercial banks to enhance credit supports to key areas and also weak links. Strictly control bank loans to industries which consume too much energy and resources, which are highly polluting or already having excessive capacity.

(10) Further improve the mechanism for forming RMB exchange rates. Remark: see also Chinese Bank declares RMB Business War Around the World.

(11) Closely monitor cross-border capital flows and also prevent the hot money influxes. Remark: see also our Inflation Warning for China.

(12) Reinforce investment management and risk management over foreign exchange reserves, so as to make better returns of these investments.

In short, this Chinese Government Work Plan for 2011 is the first annual plan for 12th 5-Year Plan to start with and hence, as you may also notice, it shares a lot of basic elements in that 12th 5-Year Plan and is extremely critical for the success of the 12th 5-Year Plan.

One point we have to emphasize to you is that, since the GDP is placed "number one" among all the above targets, it should still be a bit more important than CPI from Beijing's point of view, although inflationary risk remains high here in China.

Again, as the whole Government Work Report is too lengthy, we will continue to go through the 2011 Chinese Top 10 Focus Areas, which is the final part (Part III) of the Government Work Report, with you in our coming articles.

Next article (Part III): Top 10 Focus Areas for Chinese Government in 2011

Related article(s):
China's 12th 5-Year Plan and Government Work Report


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