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China's National People's Congress kicks off with weakened, politically-minded growth target

It's that time of year again: The parliamentary spectacle that is China's National People's Congress has kicked off with the government's annual economic growth target.

That magic number — "around 6.5 percent, or higher if possible" — was announced by Premier Li Keqiang, who delivered his version of a "state of the union" address on Sunday. If China delivers growth at that pace this year, it would be slower than the 6.7 percent expansion last year.

China, the world's second-largest economy, is in the spotlight as the government works to maneuver a difficult transition, moving away from growth led by manufacturing and exports, and toward the services sectors. It's easier said than done, especially in the face of a broadly sluggish global economy, as Li highlighted.

The tone of Li's speech toed the line, emphasizing some reforms while maintaining optimism and stability, which is a major government priority in the run-up to a major leadership shuffle this fall.

"Policymakers have faced a hard trade-off. On the one hand, they need short-term growth stability to focus on political power consolidation," said Macquarie analyst Larry Hu. "On the other hand, they also need long-term growth sustainability."

Barry Huang | CNBC

Li also announced a series of additional targets, including keeping the consumer price index around 3 percent, continuing to tackle overcapacity in the coal and steel sectors, and pledging to create 11 million new urban jobs.

"An important part of successful excess capacity reduction is the settlement of employees in affected locations," said UBS economist Wang Tao. Doing so will help "maintain social stability," she added.

China is expected to continue setting aside funds to offer unemployment relief, training and job placement services, as it started to do last year when the government announced it would shed 1.8 million coal and steel jobs.

Li emphasized that shoring up growth at around 6.5 percent would be key to job creation. But experts remain skeptical that the government will succeed in creating enough new jobs.

"There is not now, nor has there ever been, any magical connection between GDP and jobs," said Derek Scissors, chief economist of the China Beige Book. He noted that China had said it needed even higher GDP growth when its labor force was expanding at its peak pace, rather than the current contraction on jobs.

"This doesn't make any sense economically, but it's perfectly clear politically," Scissors said.
Still, NPC delegates are expected to rubber stamp their approval of the ruling Communist Party's proposals, which include a commitment to lower costs for roaming and Internet services — an idea that drew quite a bit of applause from the crowd.

Looking ahead, what the government didn't say was perhaps as telling as what it did. Beijing usually announces its defense budget at this time, but didn't do so this time around.

Officials haven't explained why, and the figure could still be announced later this week as parliamentary meetings continue. On Saturday, a government spokeswoman had indicated that military spending would increase around 7 percent. It's a move to help the country shore up national security, said NPC spokesperson Fu Ying.

China's economy may no longer be expanding with double-digit percentage growth, but the economy is still gigantic — worth about $11 trillion last year.

"Don't worry about good old China," wrote Carl Weinberg of High Frequency Economics in a note. "Its growth rate is still among the fastest in the G20, and China contributes more to global GDP growth than any other country by a quantum."

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