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China's new economic growth target is lower but still robust

Trump delays trade deadline on China tariffs
  • Premier Li tells the National People's Congress that China's new GDP target is 6 percent to 6.5 percent
  • That's down a bit from 2018's growth of 6.6 percent, but is still among the world's strongest
  • He also promised that foreign companies will now be "treated as equals" with domestic companies
  • Military spending will also rise, but at a slower pace to help with commercial economic priorities

Beijing – China has announced a lower but still robust target for annual economic growth and a 7.5 percent rise in military spending as it convened an annual legislative session on Tuesday that's overshadowed by a tariff war with Washington.

Seeking to defuse U.S. and European complaints that the Chinese system is rigged against foreign companies, Premier Li Keqiang promised in a speech to the National People's Congress those companies will be "treated as equals" with their Chinese competitors.

Li, the country's top economic official, set this year's growth target at 6 percent to 6.5 percent, reflecting determination to shore up a cooling, state-dominated economy and prevent politically dangerous job losses. Slightly below last year's 6.6 percent growth, a three-decade low, it would still be among the world's strongest if achieved.

The premier promised to "promote China-U.S. trade negotiations," but he gave no details of talks aimed at ending the fight with President Donald Trump over Beijing's technology ambitions and complaints it steals or pressures companies to hand over technology.

President Trump said in late February that he's delaying the imposition of new tariffs on China beyond the just-past deadline of March 1. He cited "substantial progress" made in trade talks between U.S. and Chinese negotiators. Mr. Trump also said he plans to host Chinese President Xi Jinping for a summit at his Mar-a-Lago resort in Florida, "assuming both sides make additional progress."

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Li, No. 2 in the ruling Communist Party behind President Xi Jinping, pledged higher spending to develop technologies including artificial intelligence, electric cars, biotechnology and new materials – all of which China's leaders see as a path to prosperity and global influence. He also promised more money for education, social programs and public works construction.

China's emergence as a competitor in smartphones, telecom equipment, solar power and other technologies has increased the range of products available to consumers and has helped to drive down prices. But it rattles Washington and other governments that worry Chinese competition is a threat to their domestic industries and employment.

Li warned that the second-largest economy faces a "graver and more complicated environment" and risks that "are greater in number and size."

A showcase for Beijing's plans

The two-week gathering of the congress's 3,000-plus delegates in the cavernous Great Hall of the People is China's biggest event of the year. It does little lawmaking but serves as a platform to highlight the government's plans for the year.

President Xi Jinping's government is expected to use this year's session to announce tax cuts and more support for entrepreneurs who generate much of China's new jobs and wealth.

Legislators also are due to endorse a law that aims to ease tensions with Washington and Europe by discouraging officials from pressuring foreign companies to hand over technology.

Higher government spending will push the budget deficit from 2.6 percent of total economic output to 2.8 percent, Li said.

The plans reflect "emphatic pro-growth efforts" to "offset external headwinds," Vishnu Varathan of Mizuho Bank said in a report.

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Proposed tax cuts of up to 2 trillion yuan ($300 billion) would put "significant spending power" in the hands of consumers and companies, helping to buoy sagging demand for autos, household appliances and other goods, Varathan said.

Spending on the Communist Party's military wing, the People's Liberation Army, will rise to 1.2 trillion yuan ($178 billion), according to a separate report issued by the finance ministry. China's total military outlay, the second-largest behind the U.S., is estimated by independent experts to exceed $220 billion a year when off-budget expenses are added in.

The spending will pay to expand China's navy and acquire advanced aircraft and other weapons to help Beijing enforce its territorial claims in the South China Sea.

"More urgent matters"

The slower rise in military spending, down from double digit increases in previous years, reflects changing priorities, said Yue Gang, a military expert and retired Chinese army colonel.

"It's more urgent for China to prepare for a trade war with the U.S., instead of a physical war," Yue said. Military reforms are nearly complete, and "China needs the money to be used for more urgent matters," he said.

The tariff fight with President Trump over Beijing's technology ambitions has rattled Chinese consumers and investors, prompting some to put off spending, which could add to downward pressure on economic growth.

No agreement on core dispute

News reports say Washington and Beijing might be close to an agreement to end the battle. But the chief U.S. envoy, Trade Representative Robert Lighthizer, said earlier the two sides still had much work to do.

No agreements have been announced on the core of the dispute: U.S. pressure on Beijing to roll back its plans for state-led creation of global competitors in robotics and other technology.

Washington, Europe and other trading partners argue that those violate China's market-opening obligations. Some American officials worry they might erode U.S. industrial leadership.

It's unclear if Mr. Trump would be mollified by the technology measure, part of a law on foreign investment that state media say the congress is due to endorse.

Foreign business groups welcomed the proposal that would bar officials from using "administrative measures" to pressure companies to hand over technology. But they also said they need to see enforcement rules to know whether it will improve business conditions for foreign companies.

An end to corporate discrimination?

Li tried to reassure investors by promising that foreign companies will be "treated as equals" with Chinese enterprises in a "fair and impartial market environment."

Foreign business groups and governments complain that Beijing routinely violates its commitments under the World Trade Organization to ensure such equality, or "national treatment." They say rules on investment, technology licensing and other facets of business discriminate against foreign companies or shield Chinese enterprises from competition.

Xi and other Chinese leaders have announced changes over the past year including tariff cuts on imported consumer goods and plans to allow full foreign ownership in auto manufacturing. But business groups say those have little impact on operating conditions.

Beijing faces a WTO challenge filed in July by the European Union against technology-licensing rules that the 28-nation trade bloc said improperly hamper the ability of foreign companies to protect and profit from their technology.

Li promised "competitive neutrality," or equal regulatory treatment of state-owned and private companies. But he gave no details of how far that might extend for foreign competitors.

"Enterprises under all forms of ownership will be treated on an equal footing," the premier said.

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