china economy
The China government is pumping in funds into the markets, while the central bank has already cut the rate and could have more in the coming days. Yet, the economy will find it difficult to get close to the targetted 6% growth after the virus attack. Image Credit: Gulf News Archive

Beijing, Shanghai (Bloomberg): Chinese officials are evaluating whether the target for economic growth this year should be softened as part of a broader review of how the government’s plans will be affected by the deadly virus outbreak.

The annual growth target is typically unveiled in March at the country’s legislative session after being endorsed by top leaders at the annual Central Economic Work Conference in December. Economists had expected China would aim for output growth of “around 6 per cent” this year after seeking a range of 6-6.5 per cent in 2019.

The change in focus should not come as a surprise to investors and economists who were already bracing for weaker growth than was previously expected amid threats to demand and the country’s supply chain. Some reckon growth could dip to 4.5 per cent in the current quarter.

Officials are though also considering further measures to shore up the economy, including increasing the planned cap on the budget deficit-to-GDP ratio and selling more special government bonds.

Could be delayed

This year’s legislative gathering, scheduled to begin March 5, could be delayed as the epidemic disrupts work across the country. Any changes to the growth target would have to be approved by top leaders of the Communist Party.

Even before the outbreak, China’s economy was already slowing amid weak domestic demand, a crackdown on debt and the trade war with the Trump administration. GDP expanded 6.1 per cent last year, the least in almost three decades.

First quarter would set the tone

In a containment scenario - with a severe but short-lived impact - the virus could take China’s first-quarter gross domestic product growth down to 4.5 per cent year-on-year. That’s a drop from 6 per cent in the final period of 2019 and the lowest since quarterly data that begins in 1992.

China’s central bank took its first concrete steps to cushion the economy and plunging markets from the blow of the virus, providing short-term funding to banks and cutting the interest rate it charges for the money.

The People’s Bank of China added a net 150 billion yuan ($21.4 billion) of funds on Monday using 7-day and 14-day reverse repurchase agreements. The rate for both was cut by 10 basis points, driving down the cost of the money to “ensure ample liquidity during the special period of virus control,” it said in a statement. Further rate cuts could be there later in the month.