China to lower defense budget growth to 7.5 percent China 06:20

Chinese President Xi Jinping left and Chinese Premier Li Keqiang right at the opening session of China's National People's Congress at the Great Hall of the People in Beijing on Tuesday

China to slash taxes, boost lending to shore up slowing economy

China previous year cut taxes and fees worth 1.3 trillion yuan and allowed local governments to issue 1.35 trillion yuan in special bonds to fund key projects. Li also confirmed that China's GDP grew by 6.6 percent in 2018. China is dedicated to having a relationship based on nonconflict, nonconfrontation, mutual respect and win-win cooperation, he said, adding that China will also firmly safeguard its sovereignty, security and development interests.

"The deficit will be 2.76 trillion yuan", the document says.

President Xi Jinping's government is expected to use this year's session to announce tax cuts and more support for entrepreneurs who generate much of China's new jobs and wealth.

The U.S. and China are close to a trade deal that could lift most or all U.S. tariffs as long as Beijing follows through on pledges ranging from better protecting intellectual-property rights to buying a significant amount of American products.

The government has set a consumer inflation target of around 3 percent despite a recent softening in price rises to less than 2 percent, which gives Beijing some room to stimulate consumption.

But with the economy losing steam, Value-Added Tax and social security fees will be cut, in a bid to stave off job losses and the related risk of unrest.

China's government has trimmed this year's economic growth target to a relatively robust 6 to 6.5 percent amid a tariff battle with Washington and a slowdown in global growth.

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The government will spend 1.19 trillion yuan ($177.6 billion) on defence in 2019, after it increased its outlay by 8.1 percent to 1.11 trillion yuan in 2018, according to a government report presented at the start of the annual meeting of the National People's Congress (NPC).

"We must be fully prepared for a tough struggle", he said.

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.

In a bid to defuse US and European trade complaints, Premier Li Keqiang pledged in a speech at the opening of China's national legislative session that foreign and local companies will be "treated as equals". In 2018, 17 provinces set lower targets.

His comments come against the backdrop of a trade dispute with the US. "They need to strike a balance between boosting economic activity and not restart another debt-fuelled boom". Beijing is generally hugely reticent to admit economic weakness, and Li's words on Tuesday suggest the true gravity of the situation in an economy that not only faces external headwinds from the trade war, but is also grappling with major internal issues.

Separately, China's top banking regulator said on Tuesday Beijing could "absolutely" reach an agreement with the United States on opening up its financial sector.

But in signs that tensions from the tariff battle could soon ease, sources tell CNBC that the USA and China are now in the "final stages" of a trade deal that could end this month.

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