If there is one key message on the economy to take away from the National People’s Congress it is that the government is aware of downside risks to growth but confident that it has the tools and the policy space to deal with them. Given the weakness of incoming data, this means that further policy support is highly likely. The next step will probably be a cut to the required reserve ratio to bring market interest rates down. But policy support will be calibrated. The setting of a lower GDP growth target reflects recognition that China’s sustainable growth rate has fallen, but also signals that policymakers won’t chase growth for its own sake.
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