The Chinese authorities have set a target for the growth of the country’s economic system for 2024.
The mentioned figure is 5%. This is an ambitious goal and at the same time a logical solution from the point of view of ensuring an acceptable state of the country’s economy. For example, Zhang Wenkui, a researcher at the Development Research Center of the State Council, believes that Beijing needs to maintain economic growth at more than 5%.
The goal for the current year, which was officially announced by the top political leadership of China, is likely to become a factor of pressure on the country’s authorities. In this case, it implies the need to use additional incentives to activate the positive economic dynamic. The present measures are likely to be insufficient for Beijing’s guidelines, which exist in the format of a vision of the most favorable option for the future, to become an objective reality. Currently, China is trying to solve the problem of falling confidence in the country’s economic system. This negative circumstance is the result of the impact of factors such as deflation, which has become a stable tendency, showing confident signs of stability, and a significant decrease in the cost of real estate.
Chinese Prime Minister Li Qiang on Tuesday, March 5, at the opening of the national parliament meeting, during which the mentioned goal was announced, acknowledged the existence of problems for the world’s second-largest economy. During a speech to several thousand delegates who gathered in the Great Hall of the People in Beijing, he said that the implementation of the officially approved development plan would be a difficult task. Separately, the Prime Minister said that to achieve the goal of economic growth, political support measures and consolidation of efforts in all segments of the state system are necessary.
When planning the country’s development for 2024, the Chinese authorities repeated last year’s guidelines. In this case, economists’ forecasts have come true. At the same time, the implementation of the plan will be a more difficult task compared to the amount of effort and complexity of solutions that were needed last year. Analysts interviewed by the media are of the opinion that the target growth rate of the Chinese economy in 2024 is highly likely not to be achieved. The consensus forecast of experts provides that the corresponding figure in the current year will be 4.6%. Analysts also note that achieving the goal faces a kind of barrier, which is the unwillingness of a significant part of the Chinese political leadership to introduce large-scale measures to stimulate the economy. Some supporters of the relevant position, which is partly a political issue, say that the mentioned measures will cause a significant increase in public debt.
Jacqueline Rong, chief China economist at BNP Paribas SA, says the economy’s 5% growth target is probably designed to boost confidence. At the same time, according to the expert, specific measures to achieve the specified goal may become a factor of limited impact on the relevant sentiments, the improvement of which is a task of particular importance for Beijing. Jacqueline Rong also noted that it will not be easy to make the target an objective economic reality. BNP Paribas SA forecasts that the Chinese economy will grow by 4.5% in 2024.
After the announcement of the specified target in Beijing Chinese stocks listed in Hong Kong declined. The Hang Seng China Enterprises index fell 3%. This negative rate of the dynamic is the largest decline in more than one month. At the same time, the CSI 300 onshore index was in a kind of instability range between gains and losses but then showed a slight increase. The yuan exchange rate showed practically no changes against the background of the news from Beijing, maintaining the stability of the indicator onshore and offshore.
The annual meeting of the Chinese political community takes place at a time when the head of this country, Xi Jinping, is making efforts to ensure that the Chinese economy returns to the reach of what can be symbolically called positive faith, providing for an assessment of the prospects for the future, containing strong growth expectations. The relevant task faces barriers in the form of large-scale trends of negative content.
China has not yet managed to overcome the crisis in the real estate sector. Dire straits in this area negatively affect trust not only by the very fact of its existence but also by the fact that the corresponding state of affairs turned out to be longer than originally assumed, which is probably evidence of some frivolity in the initial formation of the perception of the problem. Besides, the crisis in the real estate sector demonstrates something like a deep impact that extends to the entire Chinese economic system as a whole. It is worth noting that this area is an important component of the country’s economy.
Beijing is also striving to cope with such challenges as a decrease in domestic demand and a significant drop in the corresponding indicator in the export direction, geopolitical tensions against the background of a kind of degradation of the process of interaction between China and the United States. Moreover, general tensions in the world political area are another source of deterioration for the Chinese economy.
Investors in the current situation are calling on Beijing to take decisive action. They note that foreign business leaders continue to be on the tendency of reducing or terminating interaction with the world’s second-largest economy since the local political course contains many negative factors in terms of prospects for a foreign commercial presence in the country.
Also, the National People’s Congress announced an inflation target of 3%. This means that Beijing intends to achieve nominal growth of about 8% in 2024. However, China is currently struggling with the longest period of deflation since the late 1990s. According to some experts, the current situation indicates that the local economy grew by 4.6% last year, although, according to official data, this figure reached 5.2%.
Li Qiang had already hinted at the beginning of this year that officials would not use massive incentives to boost the economic process in China. According to him, the authorities aim to avoid the country’s dependence on debt-driven growth. At the same time, there were some signs of increased government support. Beijing has unveiled plans to issue ultra-long special central government bonds worth 1 trillion yuan ($139 billion). This is an example of a rare decision for the Chinese authorities.
The mentioned bonds are designed to support major national strategies. This decision, the high probability of which has already been reported by the media, is the fourth such sale in the past 26 years. It is worth noting that a similar measure was applied in 2020. At that time, the Chinese authorities issued $1 trillion in bonds to finance the implementation of the coronavirus pandemic response plan.
Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc., says Beijing has kept the headline fiscal deficit at last year’s 3% target, but a rare expansion in October set a precedent for special adjustments. According to the expert, Chinese officials are currently balancing growth and risk prevention.
Bruce Pang believes that the Chinese budget deficit will be shouldered mainly by the central government, which will increase transfer payments to municipal authorities and eliminate local debt risks. A report by the country’s Finance Ministry, released on Tuesday, contains a promise to decisively curb new hidden debts and resolve existing debt in an orderly manner. This statement acknowledges the efforts to manage the balance sheets of the municipal authorities.
An IMF report published in the current year notes that conversations between representatives of this organization and Chinese officials indicate that Beijing assesses fiscal policy in the configuration of 2023 as proactive.
It is worth noting that the willingness of China’s top political leadership to expand its borrowings to take the heat off the blow to municipal debtor authorities is to a certain extent limited. It is expected that in the current year, payments on the central government’s debt will show an increase of almost 12% compared to 2023 and will take second place in the list of government expenditures after the defense budget.
Chongqing Mayor Huang Henghua, during a conversation with media representatives on Tuesday, said that this municipality aims to increase its GDP to 4 trillion yuan by 2027. Last year, this figure was 3 trillion yuan.
Xi Jinping’s phrase that housing is designed for living in, not for speculation, was excluded from the report on the work of the authorities for the first time since 2019. It is worth noting that this phrase has managed to become something like a political maxim. The rejection of the mentioned statement in the list of official estimates and several guidances is because Beijing is trying to stabilize the situation in the real estate market, whose share in the structure of China’s GDP in the past was about 25%. The phrase about housing was used by local politicians to signal an intention to cool the mentioned market, which was in a state of over-activation, containing potential risks associated with an excess of the dynamic of the expansion.
Beijing has also promised to prevent overcapacity in some of China’s main industries. Currently, many local companies are facing the problem of declining profit margins after falling prices. Against this background, a factor of negative impact on competitiveness is being formed. China’s excess capacity also increases tensions with trading partners, including the European Union and the United States.
Furthermore, the Chinese authorities’ target for urban unemployment in the current year is 5.5%. Beijing also intends to create 12 million new jobs. Another goal is to increase the consumer price index by about 3%.
Chong Ja Jan, associate professor of Political Science at the National University of Singapore, says that due to restrictions related to access to data, it is difficult to determine the scale of Beijing’s economic expansion or its spread across the entire economy.
This year, it was decided to abandon the holding of a press conference by the Chinese Prime Minister in the National People’s Congress, a platform that provides the public with an opportunity to communicate with a representative of the top political leadership and discuss solutions to economic problems. This event has already become a tradition with a 30-year history. Against the background of the mentioned decision about a press conference, taken this year, investors’ concerns about transparency have strengthened, which has already caused a drop in their confidence in activities in China.
The cancellation of the briefing came as a surprise. Analysts note that Li Qiang’s report did not contain any significant proposals to increase confidence or increase expectations for large-scale measures to support the economy. Alex Loo, macro strategist at TD Securities, said that, in his opinion, the mood about the state and prospects of China’s economic system will not change significantly, since the goal setting of the authorities remains the same. The expert also noted that currently, Beijing’s priority is to maintain sustainable economic growth.
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