The document summarizes key points from China's 2016 NPC/CPPCC session, including: - China set its 2016 GDP growth target at 6.5-7% and its 13th Five-Year Plan target at 6.5% annually, showing a prudent approach to managing economic expectations. - Supply-side structural reform is a key strategy to address overcapacity, incentivize innovation, and attract Chinese consumers back to domestic markets. - Fiscal and monetary policies will be used to stabilize growth, including increased fiscal deficit and money supply. Tax reform and private sector access to markets will also support growth.

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China Public Affairs Update March 18, 2016
2016 NPC/CPPCC Session
China Sets Prudent Target for Growth
The 2016 session of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC),
which was held from early to mid-March, drew great attention from all over the world as always. Overall, the Chinese leaders and
government were transparent about the challenges and issues that China was facing , setting prudent targets for both 2016 and
the next five years. At the same time, they also expressed confidence in the outlook for the world’s second-largest economy,
assuring that there would be no hard landing as long as reforms continue.
2015 economic performance results confirmed that the Chinese economy was in the middle of transition: GDP growth dropped to
6.9%; consumer consumption contributed 66.4% of the growth; and the service industry accounted for more than half of the total
GDP - a major shift in the Chinese economy structure. Foreign trade experienced a significant decline, with a growth rate of
negative 8%.
China sets its 2016 GDP growth target at 6.5 -7%, the first time in two decades that the GDP growth target is set with a range,
showing that the government takes a prudent approach to manage expectations from the outset. The target indicates the bottom-
line growth rate that the government will ensure to delivery by activating all necessary policy measures.
China’s 13th
Five-year (2016-2020) Plan envisions an annual GDP growth of 6.5%, a speed that will ensure China to achieve the goal
of doubling its 2010 GDP and per capita income of urban and rural residents by 2020. The plan notably places emphasis on
reforms, innovation-driven development, measures to address environmental and social imbalance, and improving access to
education and healthcare. In 2016, which marks the beginning of the plan period, China targets to create 10 million
jobs and implements more proactive fiscal policy and
prudent monetary policy with flexibility to stimulate
growth.
Supply-side Structural Reform to Drive
Sustained Growth
President Xi said “Currently and in the coming years, the factors that restrict our economic development are on both sides of
demand and supply, but the key factors are on the supply side.” The supply-side reform is a leading strategy for development in
2016 and the 13th
Five-year Plan Period, with objectives to address both overcapacity and structural issues and to bring Chinese
consumers back to China market.
In 2016, the focus to address the overcapacity issue will be on the industries including steel, coal and others facing difficulties.
State-owned enterprises (SOEs) beleaguered by inefficiencies and overcapacity will be restructured, to be reorganized, merged or
forced to exit the market. Pulling the plug on “Zombie companies” has been presented as a priority. The government will allocate
100 billion yuan to cushion the effect of job losses on families and society.
“We just have to get through this (transition) process,
and we can, without question, reinvigorate the economy
and ensure its dynamic growth.”
—Premier Li Keqiang

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The government vows to upgrade manufacturing,
intensifying efforts to implement the “Made in China
2015” and “Internet Plus” strategies, which were
launched at the 2015 NPC/CPPCC session.
The supply-side structural reform includes accelerating
the development of modern service sector, driving
initiatives such as promoting high-tech services, develop-
ing digital creative industries, and setting up fiber-optic
networks to benefit more urban and rural residents.
According to Ministry of Commerce, Chinese outbound
tourists spent 1.2 trillion yuan on shopping in overseas
markets in 2015 and per-person spending increased 21%
over the amount in the previous year. The Chinese
consumers chose to buy more from overseas markets
because of better price, more varieties and choices of
goods, and better quality. To attract them back to China ,
the government calls for working on improving quality of
consumer products, developing more varieties of prod-
ucts to meet evolving needs of consumers, and improving
consumer services.
Fiscal and Monetary Policies to Stabilize
Growth
The government will conduct a more proactive fiscal poli-
cy with a planned deficit equivalent to 3 percent of GDP in
2016, an increase of 560 billion yuan over last year. The
increase will cover tax and fee reductions for enterprises,
to help reduce their burden.
Major government investment will include 1.65 trillion
yuan on road construction, 800 billion yuan on new rail-
ways, and 20 waterworks projects.
The M2, a broad measure of money supply that covers
cash in circulation and all deposits, will grow at 13% to
maintain sufficient liquidity. More support will be
provided to the real economy, particularly small and
micro businesses and agriculture sector.
Accelerating the Tax Reform
Business tax will be replaced with value-added tax (VAT)
in all sectors. VAT deductions will cover all new fixed
assets of enterprises. The government has made a
commitment that tax burden on all industries will be
reduced.
Market Access of Private Business
China’s private sector created more than 62 million jobs in
the past two years. Despite their strong growth, many
small companies face difficulties in getting equal market
access and financing. The government committed to
cutting red tape to provide them with “reliable, effective and convenient” services. President Xi Jinping pledged to grant wider
market access to the private sector. “We will significantly relax restrictions on entry into markets such as electricity, telecom,
transportation, petroleum, and natural gas,” Premier Li Keqiang promised.
Foreign Investment
Foreign direct investment in China increased 6.4% year-on-year to $126.27 billion in 2015. FDI in the service industry rose

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17.3%, accounting for 61.1% of the total. China plans to
open up for inland and border areas and develop new
overseas-oriented industrial clusters, and encourages more
overseas investment in the central and western regions.
Urbanization
Urbanization presents the greatest potential for domestic
demand and the most powerful force to sustaining
economic development. From 2014 to 2020, 100 million
rural residents will migrate to urban areas. The government
will work on relaxing restrictions on eligibility for urban
residency, promote the development of government-
subsidized housing in urban areas and strengthen the
efforts in improving urban planning, development and
management.
The Belt and Road Initiative
It refers to the Silk Road Economic Belt and the 21st
Century
Maritime Silk Road initiatives, proposed by China in 2013 to
improve cooperation with countries in Asia, Europe and
Africa. Leveraging the initiative, China will promote greater
use of Chinese equipment, technology, standards and
services in overseas markets, and promote foreign trade.
Innovation-driven Development Strategy
The government is working on implementing a strategy of
innovation-driven development, with science and technolo-
gy deeply embedded in the economy including high-level
R&D investments. Mechanisms and initiatives like Internet
Plus will encourage the development of platforms for
crowdsourcing and crowd funding and promote the
extensive application of big data, cloud computing, and the
Internet of Things. The Government will favor new type of
business startups and models including the sharing econo-
my, which was mentioned for the first time in the govern-
ment report this year.
Ecology and Environment
The government will step up regarding environmental
issues and green development with strong measures taken
against air and water pollution. They will also encourage the development of energy conservation and environmental protection
industries. The government will work on improving compensation mechanisms for ecological conservation efforts. Commercial
logging of natural forests will be banned and new-round subsidy and incentive policies for grassland conservation efforts will be
implemented.
Education and Healthcare
Government work plan puts emphasis on improving access to education and healthcare, with greater share of funds for public
education to the central and western regions and to remote and poor areas. The central government will allocate 16 billion yuan
to be used in both rural and urban areas for medical assistance and subsidies, an increase of 9.6% over last year.