China’s National People’s Congress Plans for a Post-Covid World


At the recently concluded National People’s Congress (NPC), China’s top policymakers guided markets to expect less accommodation this year than in 2020 – and set the country up for success with a conservative growth target ahead of the high-stakes 20th Party Congress in 2022. The country’s five-year plan, however, reflects a post-Covid-19 economy with high ambitions, emphasizing Chinese innovation with scarce mention of the US.

A surprise growth target

After a decade of setting GDP growth targets like clockwork at the NPC meeting each spring, Chinese policymakers had de-emphasized growth targets in the past couple of years, talking up “quality” over “quantity” of growth. They outright shunned setting a target last year at the height of the country’s coronavirus outbreak. Even without a target, growth surprised on the upside in 2020, with a 2.3% real GDP growth rate – a rare positive print in a year of recessions in most other economies. So, it was somewhat surprising that policymakers at this year’s NPC offered a real GDP target of above 6% for 2021 – well below consensus expectations and our own forecast of around 8%. This may be a calculated move ahead of the 20th Party Congress in 2022, when party leadership is expected to be determined. At this rate, President Xi Jinping would be able to claim growth outperformance in 2021, helping solidify his power base. At the same time, it could give ammunition to policy hawks and reformists who are concerned about containing China’s rising debt burden.

China’s Economy Is Forecast to Grow Faster Than the Government’s Target

The government also set a 3% Consumer Price Index (CPI) inflation target (not to be confused with the central bank’s inflation target of 3.5%) for 2021. This appears to be an ambitious goal when headline inflation is trending in negative territory and is at its lowest levels in more than a decade, according to the National Bureau of Statistics.

Core Inflation Has Fallen to Negative Levels

Source: Macrobond, Bloomberg, PineBridge Investments calculations as of 5 March 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

Downsizing the fiscal stimulus

Policymakers offered clearer direction on fiscal policy. China set a narrower fiscal deficit target this year of 3.2% of GDP, down from the record 3.6% set last year. According to our own calculations, the actual budget deficit last year rose to 6% of GDP. That said, China has missed its annual deficit targets since 2015. Nevertheless, the takeaway should be the direction and not the level. Unlike the US, which is set to pass another fiscal package in the trillions of dollars, the Chinese government has signaled that it is keen to take some pressure off the fiscal expenditure valve this year.

China Seeks to Scale Back Fiscal Spending

China fiscal deficit (% of GDP)

Source: Macrobond, Bloomberg, PineBridge Investments calculations as of 5 March 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material.
On the local government side, the special local government bond issuance quota has been scaled back to CNY3.65 trillion (US$562 billion) from the CNY3.75 trillion quota last year. The government also said it did not plan to continue issuing Covid-19 spending-related special treasury bonds. Policymakers additionally vowed to “safeguard” employment with a target of 11 million new jobs and to keep the surveyed unemployment rate around 5.5%, not too far from where it currently sits.

Reining in Local Government Bond Issuances

Source: Macrobond, Bloomberg, PineBridge Investments calculations as of 5 March 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

On the monetary side, policymakers kept the language from December 2020’s Central Economic Work Conference by promising that broad credit and money supply growth will be in line with nominal GDP growth and that monetary policy will be “flexible and … reasonable.” This is in line with our own forecasts. Total social financing growth, a broad measure of credit and liquidity, averaged approximately 12.5% in 2020, and we expect it to fall to 10% this year. M2 money growth averaged 10.3% last year, and we expect that rate to modestly slow to around 9% this year. Policymakers also promised to keep the yuan exchange rate “generally stable at an adaptive, balanced level.” That’s not too far off from our expectation of a slightly stronger yuan this year, with a year-end forecast of 6.35 to the US dollar.

Ambitious five-year targets

In addition to its 2021 targets, policymakers also released a list of 2021-2025 policy goals that put greater emphasis on technology and environmental conservation spending. Premier Li Keqiang called for research and development (R&D) spending to average 7% over the next five years and for it to take on a greater proportion of GDP as part of the “Sci-Tech Innovation 2030 Agenda.” Policymakers also plan to step up regulation on China’s fintech sector, “improving the mechanism for managing financial risks.” The abrupt cancellation of fintech giant Ant Group’s US$37 billion IPO last year just days before its dual listing in Shanghai and Hong Kong spooked markets after authorities said there were “issues” with the listing.

Additionally, China has emphasized greater expansion into nuclear energy in its five-year plan as the economy sets to expand non-fossil-fuel energy sources to 20% by 2025 and aim for net carbon neutrality by 2060.

With little mention of the US, Premier Li signaled China’s stepped-up engagement in global free trade agreements. He said China is actively considering joining the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which evolved after the original TPP fell apart following US withdrawal in 2017. CPTPP already includes seven of the 15 member nations of the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement anchored by China that accounts for approximately 30% of global GDP. The US is not a member of RCEP, and the Biden administration has yet to indicate whether it will participate in these trade agreements.

All told, while the NPC’s forward-looking goal setting guided markets to expect less accommodative policy this year and what looks to be an easily achievable growth target, plans for the next five years are loftier – envisioning a post-Covid-19 economy that prioritizes environmental protections and strengthens China’s position as a technological innovator.


For more of our views on forces driving China’s outlook, see “What’s Ahead for China’s Economy? Five Key Investor Questions Answered,“ published 16 February 2021.


Investing involves risk, including possible loss of principal. The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. This material does not constitute investment, financial, legal, tax, or other advice; investment research or a product of any research department; an offer to sell, or the solicitation of an offer to purchase any security or interest in a fund; or a recommendation for any investment product or strategy. PineBridge Investments is not soliciting or recommending any action based on information in this document. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of PineBridge Investments, and are only for general informational purposes as of the date indicated. Views may be based on third-party data that has not been independently verified. PineBridge Investments does not approve of or endorse any re-publication or sharing of this material. You are solely responsible for deciding whether any investment product or strategy is appropriate for you based upon your investment goals, financial situation and tolerance for risk.

Leave a Reply

Your email address will not be published. Required fields are marked *