China increases defence budget by 7.5% to $177.61 billion

Zhang Yesui spokesman for the annual session of the National People's Congress

The budget deficit previous year accounted for around 2.6% of GDP. It will be a crucial year for China as it endeavors to achieve the first centenary goal of building a moderately prosperous society in all respects, the report says.

Spending on the Communist Party's military wing, the People's Liberation Army (PLA), will rise to 1.2 trillion yuan ($178 billion), the Premier said.

In an apparent nod to the United States, with which China has been talking to strike a trade deal, Li emphasized that Beijing will proceed with its "reform and opening-up" policy, created to develop a market economy under the ruling Communist Party.

In the face of sliding confidence in the economy and global trade tensions, however, Chinese economic planners may still need to resort to short-term stimulus measures to meet the target - which is still high by most countries' standards.

Previously growth expectations sat at 6.5% GDP growth annually, but that target will now be replaced by an ambition to grow China at 6% to 6.5% per year.

The government will also reduce the social security fees paid by companies to 16 per cent, the premier said.

The surveyed urban unemployment rate is projected to stay around 5.5 percent, the registered urban unemployment rate within 4.5 percent, according to the report to be delivered Tuesday morning at the second session of the 13th National People's Congress, China's top legislature.

To support growth, Li said China would closely monitor employment at exporting companies heavily exposed to the USA market and cut Value-Added Tax for the manufacturing sector to 13 percent from 16 percent.

The world's second-largest economy recorded official growth of 6.6 percent in 2018, the slowest pace in almost three decades, due to slow demand at home and overseas and a bitter trade war with the United States.

The rate marks a fourth straight year for the budgeted growth rate to dip into the single digit since 2016, following five consecutive years of double-digit increases, official news agency Xinhua reported.

Further cuts to the required reserves ratio for smaller banks are planned, according to the work report.

Beijing "will continue to promote China-U.S. trade negotiations", Li said, adding, "China is committed to mutually beneficial cooperation, win-win development and settling trade disputes through discussion as equals".

President Xi Jinping's government is expected to use this year's session to announce measures to support economic growth including tax cuts and more support for entrepreneurs who generate China's new jobs and wealth. "They need to strike a balance between boosting economic activity and not restart another debt-fuelled boom".

China might be preparing to offer measures like the further opening of the auto and financial sector to foreign investment and cutting of tariffs of foreign products as concessions in negotiations with the U.S., and thus Li had no incentive to make pledges in these areas before a deal is reached.

US Secretary of State Mike Pompeo said on Monday he thought both nations were "on the cusp" of a deal to end their trade war.

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