In Premier Wen's annual report to China's People's Congress, one figure caught particular attention in the media and the market. The government cut its GDP growth target for Y2012 to 7.5% from 8% in the previous years. Many people are interpreting that this would translate to sub-8% growth for China in Y2012, while for us, it's less obvious.
In fact, the figures in Premier Wen's report do not match with each other. The report lowers growth target to 7.5% while maintaining employment target at 9 million as in the each year from Y2005 to Y2011. Such an employment target probably implies still higher than 8% of growth rate. Moreover, the report sets the 1.5% of deficit to GDP target and the 800 bil budgetary deficit for Y2012, this would translate to a nominal GDP of 53 tril RMB in Y2012, representing a more than 12% of growth in nominal GDP. With the 4.0% target for CPI, the deficit to GDP ratio would imply a real growth of at least of 8% or higher.
The figures can not tell us much about the direction that Y2012 will move towards. The 7.5% growth target is more or less symbolic. Something more important probably is the orders of major tasks that premier Wen talked in his report. Compared to that in Y2011, the report mentions maintaining stable and relatively fast growth ahead of maintaining price stability. This shows inflation is less a concern for Y2012 compared to Y2011.
Overall, there is not much substantial change in this government report. We expect policy continuity with slight preference towards growth.
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