We already know the headline numbers from China’s NPC meeting are, on balance, Australia negative. the 7.5% growth target is god but the 17.5% fixed asset investment growth target is down sharply and the 13% M2 target is lower that the monetary conditions currently squeezing the industrial economy.
Here’s some more detail from Credit Suisse on the proposed reforms:
Although 7.5% growth is relatively low compared to the past targets, we think this is an ambitious target. We currently project 7.3% GDP growth and 3.0% CPI for 2014. Besides the cyclical targets, the highlights in Premier Li’s speech includes: (1) advancing online finance; (2) opening up investment projects in finance, oil, power, railways, telecommunications, resources and utility industries to private capital; (3) promoting Shanghai Free Trade Zone and replicating its experience to the other parts of the country; (4) removing commerce and trade barriers in the domestic market; and (5) settling 300 mn people through urbanisation and housing upgrade programmes.
Regarding fiscal reforms, the government plans to extend the scheme of converting corporate tax to VAT, and to railways, post services and telecoms industries. It attempts to establish consumption tax and resources tax. It will advance the legal framework for launching property tax and environmental protection tax in the future. It aims at reallocating the fiscal revenues between central and local governments. Also, it aims at establishing funding channels for the local government and consolidating local debt into the central government’s budget system.
Premier Li affirmed the government’s commitment to interest rate liberalisation, widening the exchange rate trade band and advancing the capital account liberalisation. For domestic demand, the working report emphasised the importance of enhancing private consumption as the pillar of economic transformation. It specifically mentions about data consumption (broadband, 4G mobile and e-commerce), logistics reform (logistics distribution, express delivery and online shopping).
For investments, Premier Li has put a high priority on subsidised housing, agriculture, railways in western China and environmental protection. It appears to us that Beijing has deemphasised infrastructure investment, which was the key driver in the stimulus packages launched by the previous administration. The government plans on starting 7 mn units of subsidised homes this year.
From HSBC, here are the State Council’s nine major tasks for 2014″
- Making breakthroughs in reform in important areas.
- Ushering in a new phase of China’s opening to the outside world and ensuring a high level of economic performance.
- Making domestic demand the main engine driving growth.
- Advancing agricultural modernization and rural reform and development.
- Carrying out a new type of people-centered urbanization.
- Using innovation to support and lead economic structural improvement and upgrading.
- Accelerating the development of education, health, culture and other social programs.
- Making coordinated efforts to ensure and improve people’s wellbeing.
- Building China into a beautiful homeland with a sound ecological environment.
The lesson from last year is that less infrastructure-focused stimulus projects still require a decent amount of steel so it’s not all bad news. But the mix of tight credit with fiscal priorities of environmental amenity and “people-centered urbanisation”, reeks of soft infrastructure like improved social services, not building (even more) bridges.
It’s a wild guess but the case for flat (even marginal falls) in Chinese steel demand this year looks real.
