The Daily Update - China's NPC - a strong, stable and de-risked economy

The biggest political event of the year kicked off on Monday in China; the National People’s Congress (NPC), will continue until 20th March and will see just under 3,000 members join in the legislative talks. At the opening, Premier Li Keqiang noted the 2018 growth target is set at ‘around 6.5 percent’, as expected. Aside from making sustainable and high-quality growth a priority over rapid growth, labour-market targets are key; Li noted that 6.5% growth is sufficient enough to achieve full employment.

The inflation target was left unchanged at around 3% for 2018. Other interesting notes included the PBoC’s prudent and neutral monetary policy stance, with the removal of M2 and total social financing targets (TSF). However, more importantly, fiscal policy is to remain proactive this year; the government has lowered its budget deficit for the first time since 2012, to 2.6% of GDP (from 3%). And the push to de-risk continues to be high up on the agenda. The expansion of air and naval defence were also highlighted as key priorities; with defence spending expected to increase by over 8% this year. Over the next couple of weeks, we will hear more on: Xi’s constitutional amendment, year ahead budget approval, details on a cleaner greener and more prosperous society (by 2020), and further details on fiscal and monetary policy, including a potential property tax.

The obvious knee-jerk reactions were witnessed as the renminbi initially fell against the dollar following  “trade war” concerns. There have also been some speculative concerns that China will use the renminbi to increase its competitiveness or as ammunition in the “trade war”. However, policymakers have reiterated time and time again that they wish for markets to play a larger role in the currency, and state that they are not willing to intervene in the currency if volatility remains stable and within range. Li also mentioned that the currency will be kept largely stable and at appropriate levels. So far this year the offshore renminbi is up 2.75% against the dollar in spot terms.

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