Premier Li Keqiang’s work plan for 2016 sets a lower, but still ambitious target for GDP growth. A range of 6.5 to 7 percent is down from 2015’s 7 percent target. In order to hit it, and offset the short-term drag from industrial restructuring, monetary and fiscal policy support will be expanded. The risk is China could end the year with growth on the mark but debt even harder to contain.

To get to 6.5 percent, Li is promising an expanded monetary stimulus. The target for M2 money growth is up to 13 percent from 12 percent in 2015 and total social finance is set to expand 13 percent. That implies 17.9 trillion yuan in new finance, up from 15.3 trillion yuan in 2015. Li says the government will use the full range of monetary policy tools – including interest rates and the reserve requirement ratio.

In fact, monetary policy has already been in stimulus mode since the middle of 2015, with loan growth stabilizing and then accelerating again. Saturday’s announcement confirms that the focus is firmly on supporting short-term growth, with the deleveraging can kicked further down the road. Assuming 8 percent growth in nominal GDP and 13 percent expansion in outstanding borrowing, economy-wide debt would end 2016 at about 258 percent of GDP, up from 247 percent of GDP in 2015, according to BI Economics’ calculations.

Fiscal policy will also play a larger role in supporting growth. The fiscal deficit target has been expanded to 3 percent of GDP from 2.3 percent in 2015. While the expanded deficit target is an important signal, the reality is that budget targets are indicative rather than binding, with the bulk of borrowing actually happening off balance sheet. A projected 13 percent drop in local government land sales mean town halls will have to borrow more to keep the wheels turning.

The focus of reform is on addressing overcapacity. The government reiterates its commitment to make cuts in steel and coal production, promises to deal with zombie companies “proactively yet prudently” and to strengthen supply-side reform. It remains to be seen how much progress will actually be made on politically contentious and socially

destabilizing closures of failing firms. To

the extent supply-side reform does make significant progress, stimulus is required to offset the short-term drag on demand.

There’s no problem with expanded policy support if the government takes advantage of the cushion to pursue aggressive reforms. The risk is that if stimulus is expanded and reforms lag, the government will face an even larger challenge from deleveraging without having made significant progress on improving efficiency. How much progress will be made on supply side reforms remains to be seen. The announcement of a meager 100 billion yuan fund — less than 0.2 percent of GDP — to cushion the blow to employees of restructured firms suggests the government is not planning sweeping bankruptcies and mass layoffs.