China has abandoned setting a GDP target for 2020 for the first time since it began the practice in the early 1990s as the country faces a struggling domestic economy and increasing international export tariffs.
Chinese premier Li Keqiang at the opening of the National People’s Congress (NPC) in Beijing said the country will face factors that are difficult to predict due to COVID-19 and the world economic and trade environment. As a result, the government will prioritize stabilizing employment and living standards instead of a GDP target.
Li said China’s economic growth, which shrank 6.8pc in Q1 2020, the first contraction since 1992, is expected to further contract in Q2 2020. Prior to the pandemic, China was expected to report a 6pc GDP growth target for 2020. In 2019, China’s GDP expanded 6.1pc which fell within the 6-6.5pc target range.
Instead of GDP growth, China is focusing on decreasing unemployment to 6pc, maintaining inflation at most 3.5pc, and reducing interest rates. Monetary policy remains prudent but more flexible compared to prior years with the growth of money in the market expected to increase 10pc.
The country will increase construction of new types of infrastructure projects, housing renovation, increase electric car charging stations, and increase railway development. These efforts will support the steel supply chain with increased steel usage in construction and rail projects along with increased purchases of electric vehicles.
The support to traditional infrastructure seems limited as Beijing shifting to new infrastructure to spur its economy. Ferrous and non-ferrous metals are recovering in Q2 2020, but an upward move was limited by the announcements.
Steel prices in China encountered strong recovery in April and May. However, the lack of commitment to a high growth target or detailed infrastructure spending during the Congress decreased the confidence of metal market participants.
COVID-19 disrupted supply chains, decreased global consumption, decreased investments, and increased protectionism both politically driven and because of China’s oversupply, such as in the case of steel.
China’s production of crude steel and pig iron increased by 2.4pc and 1.2pc, to 199mn mt and 234mn mt, respectively in Q1 2020 compared to the same period last year. To maintain the increased levels of production, and not dampen prices domestically or globally, China must focus on domestic consumption and export opportunities in the year.
Some analysts view the focus away from GDP growth targets as positive since China’s policies will focus on sustainable demand from organic consumption, fair trade exports, and private sector investments. Other analysts, however, view it as a poor sign for the world in 2020 as it becomes increasingly reliant on China as an engine of global economic growth.
In steel, China’s futures opened higher on Friday on the Shanghai Futures Exchange. The most active construction steel bar contract for October delivery opened by RMB12 ($1.7/mt) at RMB 3,560/mt but closed by RMB 13/mt at RMB3,547/mt by the end of the day.
($1=RMB7.13)