China’s National People’s Congress today approved the 13th five-year plan that highlights the major economic targets from 2016 to 2020. The key targets are newly added urban jobs and the economic growth. The Chinese authorities have set up a growth target of at least 6.5% and a target of above 50 million newly added urban jobs. Indeed, while the GDP growth of China continued to slow since 2009, the newly added urban jobs showed an upward trend.

The difference between the two indicates the country’s “two-track economy”   - manufacturing sector slows at a faster pace than anticipated, while the services sectors continue to be buoyant. China’s Premier Li Keqiang clearly mentioned that the country sees challenges in manufacturing sector, particularly in coal and steel industries. This signals that China is serious about reducing overcapacity. Also, Premier Li stated that during this process, the country will avert job cuts on a larger scale.

Indeed, the economy growth is expected to decelerate further in the process of transition and deleveraging. However, China requires going ahead with the deleveraging more decisively and stopping the leverage ratio from increasing again in the overcapacity sectors. Policy execution is important to gain back market confidence.