China’s bullish 5% growth goal seen as ‘target without a plan’
China set a bullish target of around 5 percent growth this year as top leaders try to boost confidence in the world’s second-largest economy. But for some analysts, Premier Li Qiang’s lack of details on how to get there was out of step with the nation’s deep challenges.
The country’s No. 2 official announced China would maintain last year’s growth goal as the annual parliamentary session opened on Tuesday. That was a clear signal Beijing wants to put a floor under the economy’s slowdown, marking only the second year in a decade that Beijing didn’t lower its main economic target. The last time was 2018, when dealing with the start of a US trade war.
While Li told delegates support was needed on “all fronts,” his annual report to the legislature didn’t offer much fiscal firepower: it kept the government’s deficit stable, and lacked aggressive moves to boost consumption or new policies to solve the real estate crisis. The Asian nation’s slide into its longest streak of falling prices since the 1990s wasn’t directly addressed.
“This is a target without a plan,” said Alicia Garcia Herrero, Natixis SA’S chief Asia-pacific economist. “It shows they’re not understanding the seriousness of the situation. How are you going to support consumption? Wages have been falling. There’s deflation. What are you going to do?”
Beijing appears to be betting on a rebound in private sector and household confidence. President Xi Jinping told a gathering of parliamentary delegates from Jiangsu province— known for its large private sector— to support privately owned firms and “boost the confidence of the whole society in development,” the official Xinhua news agency reported Tuesday.
A press conference with senior officials on Wednesday could fill in some of the gaps. Central bank Governor Pan Gongsheng will brief journalists, alongside Commerce and Finance ministry chiefs and the new top securities regulator. But Beijing canceled the premier’s annual press briefing—ending a three-decade tradition.
While China’s $18 trillion economy has been decelerating for more than a decade, the decline has become steeper in the last two years, with average growth only slightly above 4 percent.
That slowdown has coincided with Xi’s push to put technological self-sufficiency and national security on an equal footing with economic expansion. Major stimulus is off limits, as the leadership doesn’t want to use the property market to boost growth and wants to control the levels of local government debt.
This year’s growth target is “pretty aggressive,” due to the higher base of comparison with 2023, said Li Daokui, a professor at Tsinghua University in Beijing who advised the government on its goals.
While projects highlighted on Tuesday such as renovating aging city districts will boost domestic demand, officials need to go further, Li said. “I say this openly to the premier, China needs more aggressive policies to promote consumption,” he said in an interview with Bloomberg Television.
Jobs target
WITH official measures showing youth unemployment remains high, the government signaled a sense of urgency by setting its highest-ever urban job creation target of more than 12 million for this year—but without detailing any new policies to achieve that.
China’s No. 2 official reiterated a pledge made by Xi to encourage consumption by supporting households to trade in old vehicles, electronic products and other big-ticket items, a program that Goldman Sachs Group Inc. estimates could add 0.6 percentage points to GDP this year. Li also announced a small boost to basic state pensions.
The premier directed officials to re-orient growth toward “new productive forces,” a slogan introduced by Xi that often refers to high-tech industries. That phrase is adding to concerns that China’s policy will focus on expanding the supply side of the economy while domestic demand is weak, leading to deflation and international trade tensions.
“Developing new productive forces does not mean neglecting or abandoning traditional industries. We must prevent herds and bubbles, and we must not all follow one model,” Xinhua quoted Xi as saying.
The premier’s report also called for reducing overcapacity in some sectors, without giving specifics.
Beijing said that the central government will regularly issue longterm sovereign bonds to support infrastructure spending - continuing a rebalancing of debt from the local to the national level that began last year. Officials remain conservative, though, with a 1 trillion yuan ($139 billion) issuance target this year that’s the same size as a similar issuance last year.
The broad fiscal deficit—a figure that accounts for multiple ways the government is funding its spending —will remain the same as in 2023, according to estimates by BNP Paribas SA. The budget implies total fiscal spending will grow just 1 percent in 2024, according to economists at Nomura Holdings Inc.
Policymakers appear sensitive to overseas worries about debt sustainability after Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative in December.
The deficit target will “send a positive signal to the outside world,” said Huang Shouhong, director of the State Council’s research office, who was involved in the government’s plan. The budget “reserves the policy room for dealing with potential risks and challenges,” he added at a briefing.
Beijing could add more stimulus later, after officials showed unusual fiscal flexibility by making a rare mid-year budget revision in 2023. Tools that don’t count toward the government’s deficit, such as central bank funding for infrastructure and housing projects, are another option for enhancing support to the economy.
While actual spending should end up being more forceful than the budget indicates, “it’s important we see the government add more housing support measures,” said Jing Liu, chief China economist at HSBC Holdings Plc. “But we don’t know yet where policymakers are in their decision process.” With assistance from Zheping Huang, Fran Wang and Lucille Liu /Bloomberg