- Official growth target of 7.5% suggests that moderate policy loosening is likely in 2014

- Budget stance is neutral; monetary policy stance is more flexible

- Few details on reform measures, but continued emphasis on government reform

Annual meeting of the National People's Congress (NPC) began on March 5, 2014. The meeting, officially named the Second Session of the 12th NPC, is a big event since it reveals official economic and social targets for 2014. This year's meeting will last eight-and-a-half days, closing at noon on March 13, 2014.

The focus today was on Li Keqiang, China's reform-minded premier, who delivered his first government report. The report outlines the government's official assessment of progress in the previous year, and sets out plans and targets for the current year.

We outline the government's key targets for 2014 in Figure 1. Most are unchanged from 2013; we have highlighted those that have changed. The targets are not binding in theory – the premier made a point of adding "about" to each one. But in practice, they are rarely missed, often because they are set conservatively. China last missed its GDP growth target in 1989.

Here are the highlights.

-?The GDP growth target for 2014 was set at 7.5 percent, at the top of market expectations. This should be positive for market sentiment. Growth (officially) is probably running at around 7.6-7.7 percent at present, so this target will generate expectations of more policy support if the economy slows much further. While some reformers argued for a target of 7.0 percent or a range of 7.0-7.5 percent, the ultimate decision appears to have been that Beijing cannot reform without a certain level of growth. The 7.5 percent target sends a strong signal to the provinces that while the central government is pushing for some painful reforms, it will still guarantee a certain level of growth.

-?The premier argued that official urban unemployment should be kept below 4.6 percent. There is much skepticism about the accuracy and utility of this figure (as well as the official job creation data) given that 180 million rural migrant workers are not included. However, the evidence we see suggests that the labor market is still relatively tight at present.

-?The CPI inflation target of 3.5 percent should be easily met. Core inflationary pressure is limited, and housing price inflation appears to be easing.

-?The premier argued that China should have an "appropriate" level of credit growth, and stuck to the 13 percent M2 growth target (which Beijing overshot in 2013).

-?We will get more detail on the budget from the Ministry of Finance's budget report later in the meeting. The headline numbers suggest a neutral fiscal stance. The budget deficit is targeted at 2.1 percent of GDP, against 2.0 percent in 2013. Premier Li also called broadly for fiscal reforms, most of them already outlined in last year's Third Plenum decision. Among them are including all revenues and spending (including data on officials' entertainment and travel expenses) in budgets in order to increase the transparency of local government and ministry budgets.

-?Premier Li also called for a continuation of his policy to eliminate unnecessary bureaucracy, including licenses and fees. The target is to eliminate or devolve to local governments more than 200 approvals.