China provided its strongest signal yet that it will shift toward balanced and clean economic growth, promising to reduce the pace of investment to the lowest in a decade and wage a "war on pollution".
In a State of the Union style address to China's annual parliament meeting that began on Wednesday, Premier Li Keqiang said Beijing aims to grow the world's second-largesteconomy by 7.5 percent this year, the same as last year's target. Analysts have said maintaining the target after years of breakneck expansion signals that Beijing will remain focused on reforms and rebalancing the economy.
Li said enacting reforms was his first priority even as he keeps an eye on growth. Idle factories will be shut, and work on a new environmental protection tax will be sped up to create a greener and more balanced economy powered by consumption rather than investment, he said.
"Reform is the top priority for the government this year," Li told around 3,000 hand-picked delegates in a cavernous meeting hall in central Beijing.
"We must have...the mettle to fight on and break mental shackles to deepen reforms on all fronts."
To aid the transformation, China's economic planner, the National Development and Reform Commission, told parliament that the government will target 17.5 percent growth in fixed-asset investment this year, the slowest in at least 10 years.
Investment is the largest driver of China's economy and accounted for over half of last year's 7.7 percent growth by expanding 19.6 percent, exceeding an 18 percent target.
Analysts welcomed slower investment growth although some worried about the impact of environmental measures on jobs and incomes.
"There have been a lot of environmental protection-related initiatives, but the issue has started to have some negative impact on people's livelihood and in the economy," said Paul Tang, an economist at Bank of East Asia in Hong Kong. "It is an area that needs to be addressed."
Li said the battle against pollution will be waged via reforms in energy pricing to boost non-fossil fuel power and cutting capacity in the steel and cement sectors which are the sources of much air pollution.
Li, China's first premier with an economics doctorate, said the government would maintain an inflation target of around 3.5 percent for 2014. Broad M2 money supply growth would be kept at 13 percent, also widely expected.
He said authorities would set up a deposit insurance scheme, a step toward China's goal of freeing up bank deposit rates. The scheme would protect depositors as Beijing is concerned some smaller lenders could go under as banks compete for deposits in a more open regime.
Li also said the government would push forward reform of the yuan exchange rate. Convertibility of the yuan on the capital account would be brought forward, Li said.
The government plans 15.3 trillion yuan ($2.5 trillion) in budgeted spending in 2014, which would produce a deficit of about 2.1 percent of GDP, unchanged from the actual shortfall in 2013, the finance ministry said.
Source: Reuters
