China turns fiscal screws, targets 6.5% growth

Bloomberg

China stepped up its push to curb financial risk, cutting its budget deficit target for the first time since 2012 and setting a growth goal of around
6.5 percent that omitted 2017’s aim for a faster pace if possible.
The deficit target—released as Premier Li Keqiang delivered his annual report to the National People’s Congress in Beijing—was lowered to 2.6 percent of gross domestic product from 3 percent in the past two years. The 6.5 percent goal is consistent with President Xi Jinping’s promise to deliver a “moderately prosperous” society by 2020.
Policy makers dropped a target for M2 money supply growth, saying it’s expected to expand at similar pace to last year. Authorities reiterated prior language saying prudent monetary policy will remain neutral this year and that they’ll ensure liquidity at a reasonable and stable level.
Xi has ratcheted up his drive to curb debt risk, pollution and poverty at a time when the world’s second-largest economy is on a long-term growth slowdown. His efforts to rein in
spending contrast with an historic expansion of US borrowing under Donald Trump during a period of economic expansion.
The 2018 targets “suggest slower growth and a fiscal drag,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore.
“This makes sense for China in the context of the new focus on financial de-risking, poverty alleviation and environmental clean-up, but is less good news at the margin for those economies that have high export exposure to China.”