BEIJING (Reuters) – China dropped its annual growth target for the first time on Friday and pledged more government spending as the COVID-19 pandemic hammers the world’s second-biggest economy, setting a sombre tone to this year’s meeting of parliament in Beijing.

The omission from Premier Li Keqiang’s work report marks the first time China has not set a target for gross domestic product (GDP) since the government began publishing such goals in 1990.

The economy shrank 6.8% in the first quarter from a year earlier, the first contraction in decades, as the outbreak of the new coronavirus, which started in the central Chinese city of Wuhan, paralysed production and hit spending.

“We have not set a specific target for economic growth for the year, mainly because the global epidemic situation and economic and trade situation are very uncertain, and China’s development is facing some unpredictable factors,” Li said at the start of the parliament meeting.

Domestic consumption, investment and exports are falling, and the pressure on employment is rising significantly, while financial risks are mounting, he warned.

Ahead of the National People’s Congress, the week-long meeting of the largely rubber-stamp parliament, China’s top leaders have promised to boost stimulus to bolster the virus-ravaged economy amid rising worries that job losses could threaten social stability.

China is targeting a 2020 budget deficit of at least 3.6% of GDP, above last year’s 2.8%, and fixed the quota on local-government special bond issuance at 3.75 trillion yuan ($527 billion), up from 2.15 trillion yuan, according to Li’s report.

China will also issue 1 trillion yuan in special treasury bonds for the first time this year.

Li’s report did not offer “anything too out of the ordinary,” said Nie Wen, economist at Shanghai-based Hwabao Trust, “reinforcing views that China would not resort to mass stimulus that some market players have been betting on.”

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Nie expects GDP growth to slow sharply this year to around 2% or 3% from last year’s 6.1%.

Louis Kuijs of Oxford Economics in Hong Kong said Beijing worries about excessive debt and financial instability but that Li’s “sizeable overall fiscal-deficit target indicates significant policy support for the domestic recovery that we expect to continue despite the challenging external background.”

Local government bonds could be mainly used to fund infrastructure projects, while special treasury bonds could be used to support firms and regions hit by the outbreak.

China has front-loaded a quota of 2.29 trillion yuan in local-government special bonds in 2020. Local governments have also issued 1.2 trillion yuan in special bonds in the first four months, according to the finance ministry.

China will transfer 2 trillion yuan in funds raised from the bigger 2020 budget deficit and special anti-coronavirus treasury bonds to local governments, Li said.

FURTHER FISCAL, MONETARY STIMULUS

Fiscal policy will be more proactive and monetary policy more flexible, Li said in his report, adding that growth in M2 – a broad gauge of money supply – and total social financing will be significantly higher this year.

The tax and fee burden shouldered by companies will be cut by 2.5 trillion yuan this year, Li said.

Small and midsize companies can delay paying loans and interest by a further nine months, through March 2021, and lending to SMEs by big commercial banks should grow more than 40%, Li said.

Li said the People’s Bank of China (PBOC) will guide its benchmark lending rate lower.

The central bank has cut the Loan Prime Rate (LPR) by 46 basis points since August 2019, when it replaced the previous benchmark lending rate. The one-year LPR rate is now 3.85%.

The PBOC has also lowered reserve requirement ratios 10 times since early 2018, including three cuts this year.

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