GDP growth target for 2017 set by
The annual meeting of the National People’s Congress (NPC) in Beijing started last week and concluded on 15 March, with a press release by Premier Li Keqiang. This is a significant event in the Chinese economic and political calendar, as senior government leadership showcase political intent for the year.
During the 10-day conference, the Chinese government set the key economic growth targets for 2017 and made a series of policy announcements. In brief, the NPC sent a strong message to shift focus from boosting economic growth to reining in financial risks, with the help of structural reforms rather than blunt policy tightening.
The GDP growth target for 2017 has been set at “about 6.5%”, although Premier Li Keqiang indicated this should be viewed as a floor and GDP could be higher if possible. Containing financial risks and corporate deleveraging was identified as a policy priority with financial regulators vowing for better coordination against shadow finance and capital market speculation.
On supply side reform, China surprised the market with larger than expected cuts in steel and coal excess capacity last year. The government has set 2017 capacity reduction targets at a slightly slower pace but still on track to achieve the original objectives over a 3 year time horizon. It also pledged to expand reform into coal-fired power generation and other over-capacity industries.
Our verdict: policy tone - very encouraging
We believe this is broadly in line with expectations. It is a further step by the policymakers towards recovering credibility in China and should help support current positive market sentiment.
In our view, the overall tone on policy settings was confidence to manage social pressure and accept lower economic growth. We view this as very encouraging. The PBoC also guided for “more neutral” monetary policy, with slower and still solid mortgage loan growth. Overall, the policy tone displayed a marginal tightening bias.
We expect Chinese macroeconomic backdrop to continue being supportive and for industrial profits to keep recovering further. The recovery in nominal GDP growth (as China producer deflation fades) is likely to deliver further upside to corporate earnings as pricing power improves. In our view, structural reforms will continue and even expand in scope, reinforcing one of our key investment themes since 2016.
Where we see value in China
Our regional Asian strategies remain overweight China mainly via value sectors such as energy and materials, and more recently financials as we believe structural reforms are most powerful in these sectors (as supply is being controlled) and market positioning is still light (given lack of faith in policymaker execution).
Growth stability and reform execution remain key supports for China, whilst key risks for China and the region are trade protectionism policies under a Trump administration. We have been monitoring this closely but thus far, concrete actions in this regard have been muted.
Source: BlackRock, Bloomberg, 15 March 2017.
CARS ID: 126256