What to expect from NPC: Growth but also more debt and inflation

March 3, 2017

HONG KONG – As China-watchers focus on China’s National People Congress (NPC), starting on Sunday, global asset manager Natixis argues that no major change in economic direction is likely – and, thus, no relevant change in economic targets, for at least two reasons.

First, it says, this NPC is only a few months away from a major political reshuffling expected to take place at the 19th Party Congress (4-5 out of 7 Members of the Standing Committee are expected to retire).

At some instances, there have even been rumours about Li Keqiang’s future, Naatixis says, which in itself weakens his ability to steer economic policy anywhere different than we are now.

Second, China’s economic situation has clearly improved since the last NPC where the China’s 13th Five Year Plan (FYP) was approved. If the Party thought that their economic targets were achievable then, they should feel even more confident now.

But there are two other factors in play that will hamper the two key economic targets, namely the fiscal deficit and inflation, Natixis says – China’s stubbornly lax fiscal policy and price developments, both globally and domestically, imply that neither the 3% fiscal deficit target, nor the 3% inflation target will be achieved in 2017.

“In other words, the overriding objective, namely GDP growth, will be achieved in 2017 but at an increasingly high cost,” Natixis says. www.natixis.com (ATI).