China tightens Hong Kong grip, sets modest GDP target as parliament begins

China moved to overhaul Hong Kong's electoral system on Friday in a further blow to democracy in the city and unexpectedly set an economic growth target for this year, albeit a modest one, as it kicked off its annual session of parliament.

On a smoggy day in Beijing, Premier Li Keqiang touted the achievements of the previous year as China overcame the coronavirus pandemic, and laid out ambitions to solidify the economic recovery, cut emissions, invest in innovation and improve a worsening demographic outlook.

Also on Friday, Beijing unveiled its next five-year plan, pledging to lift annual research and development spending by more than 7% until 2025, highlighting a commitment to become self-sufficient as the country clashes with the United States and other countries over technology policy.

"We owe our achievements last year to the strong leadership of the Party Central Committee with Comrade Xi Jinping at its core," Li said in an hour-long speech to over 5,000 delegates gathered in the Great Hall of the People, all of them inoculated against Covid-19 with a vaccine made by China's Sinopharm.

However, consumer spending remains constrained, investment growth lacks sustainability, and "the foundation for achieving our country's economic recovery needs to be further consolidated," he said in a speech that mentioned Xi 13 times.

Li set a growth target of more than 6% this year for the world's second-largest economy, seen to be easily achievable, defying expectations that China would refrain from setting a goal given global uncertainty caused by the pandemic.

China grew by 2.3% last year, its weakest in 44 years, but was still the only major economy to expand as it largely vanquished the domestic spread of the novel coronavirus that first emerged in the country in late 2019.

During Friday's parliamentary session, Beijing proposed legislation that would tighten its increasingly authoritarian grip on Hong Kong by making changes to the electoral committee that chooses the city's leader, giving it new power to nominate legislative candidates.

The measure, set to be approved during the week-long session of China's rubber-stamp parliament, would further marginalise a democratic opposition, decimated after Beijing imposed national security legislation following anti-government protests that rocked Hong Kong in 2019.

'QUALITY' GROWTH

The 2021 economic target was significantly below the consensus of analysts, who expect growth could beat 8% this year from last year's low base. Chinese shares fell.

China will keep its average annual economic growth rate over the next five years within a "reasonable" range, the government said.

Beijing also announced that its defence spending will rise 6.8% from 2020, up just slightly from last year's budget increase and broadly tracking the government's economic growth forecast.

Chaoping Zhu, global market strategist at J.P. Morgan Asset Management, said the low economic expansion target reflects a shift from quantity to quality growth.

"This implies that more resources will be allocated to push forward long-term initiatives such as environment protection, fiscal consolidation and leverage reduction, so as to boost China's long-term growth potential," he said in a note.

China pledged to lift employment, targeting more than 11 million new urban jobs, compared with last year's goal of over 9 million.

"We will expedite the transition of China's growth model to one of green development, and promote both high-quality economic growth and high-standard environmental protection," Li said.

Still, China stopped short of setting a cap on energy use in its 2021-2025 plan. Beijing previously included a cap on energy consumption in its 2016-2020 plan.

China also refrained from introducing a ban on building new coal-fired plants, and did not set a target for curbing coal power plants' capacity for the next five years.

($1 = 6.4756 Chinese yuan)