China’s top leaders set an ambitious target for economic growth by 2024 as they try to shore up confidence in an economy facing its biggest challenges in decades. century.
But they have announced only modest measures to stimulate growth, limiting the bold moves the business sector is seeking to tackle the property crisis and loss of confidence among Chinese households. Nationality and the vigilance of investors.
Premier Li Qiang, the country’s No. 2 official after Xi Jinping, said in a report Tuesday to the annual session of the legislature that the government would seek economic growth of “about 5 percent.” ”. That was also the goal that Chinese leaders set last year, as official statistics showed gross domestic product increased by 5.2%.
The central government’s spending program shows little change. The fiscal deficit was set at 3% of economic input – the same target as early last year. Last year’s deficit eventually rose to 3.8% to make room for more borrowing, something the government signaled could happen again in 2024.
Deficits are important because the more the government borrows, the more it can spend on initiatives that can boost the economy.
Conspicuously absent from the prime minister’s agenda and budget documents released on Tuesday was a move to strengthen the country’s social safety net or introduce other policies, such as vouchers products or coupons, will directly address the very weak confidence and unwillingness to spend money of Chinese consumers.
“There are many positive signs for the economy but there are not many specific proposals on how to solve the country’s growth difficulties,” he said. Neil ThomasFellow at the Asia Society’s China Analysis Center.
Some economists question whether growth last year was really as high as China claimed. Additionally, last year brought a modest recovery as strict “Covid-free” measures were in place until December 2022. To achieve similar growth this year, if not beneficial benefiting from that recovery, may be much more difficult.
Consumers and investors have been skeptical about the prospects for a long-term recovery. Stock markets in China fell sharply in January and early February, before recovering in the past four weeks, as the government took steps to encourage stock buying. Mr. Li affirmed that China is moving in the right direction but admitted that the country is facing many challenges.
He told Congress: “The foundation for China’s sustainable economic recovery and growth is not solid enough, as evidenced by the lack of effective demand, excess capacity in some industries, the expectations of low public profile and many long-term risks and hidden dangers.” The Communist Party-controlled agency approves laws and budgets.
The annual session of congress, a staged weeklong event, typically focuses on short-term government initiatives, especially economic goals. China’s growth target and the ways in which the government is trying to achieve it are under intense international scrutiny this year.
Communist Party leaders are trying to restore confidence in China’s long-term prospects and tap into new growth engines, such as clean energy and electric vehicles. Mr Li’s report also highlighted new spending on artificial intelligence and plans to “increase research on breakthrough and pioneering technologies”.
But those efforts may be hindered by a series of problems surrounding the housing sector: a glut of apartments, high debt. real estate company and local governments, as well as home buyers, do not want to put money into real estate when values are falling.
Achieving China’s growth target this year could be difficult without a massive round of bond-fuelled state spending.
“I think they’re being cautious about opening the tap too wide before seeing whether this type of funding has the desired effect,” said Eswar Prasad, an economist at Cornell University.
Many local and provincial governments across China are struggling with mounting debt. Mr. Li said the central government will only allow bond sales to increase slightly by 2.6% to support these governments.
Economists and global lenders have long recommended that China strengthen its safety net, a change that could improve the situation. Weak consumer confidence and persuade Chinese households to save less and start spending more.
But officials are cautious about increasing social spending as they need to find ways to cope with an aging society with fewer workers to support each elderly person. China’s birth rate has almost reduced by half since 2016 and about 15 percent of the population 65 years old or older – a number that is likely to increase to more than 20% by 2030.
Tao Wang, head of Asia economic research at UBS bank, said the government needs to do more to support the real estate market. Dozens of real estate developers have gone bankrupt in the past few years, Ms. Wang said, and widespread defaults “have not only hurt developers but also affected homebuyer confidence.” ”.
“They need to do more because recessionary pressures on the economy are still quite severe,” she added.
China’s economy is also facing powerful forces from beyond its borders. Government officials in the United States and Europe are working to block Chinese trade practices they consider unfair or a national security threat. And many executives at multinational companies remain troubled by the increased emphasis on domestic security and surveillance that Beijing has imposed during more than a decade of Xi’s rule.
The new budget says China’s military spending will increase 7.2% in 2024 – the same rate of increase as last year – and reach about $231 billion. China has been increasing its military spending, now the world’s second largest after the United States, for decades. Washington has approved one Military budget of 886 billion USD for its most recent fiscal year.
Chinese officials may wait to make more economic policy changes until after Xi convenes the Communist Party’s Central Committee. That meeting has not been scheduled but is expected to be held later this year.
The economy’s biggest difficulties lie in the vast construction sector, which is plummeting after the decades-long housing bubble burst in the past few years.
Home sales of the country’s 100 largest real estate developers plummeted 60% in February compared to the same month last year. Consumer confidence across China has yet to recover from a sharp decline during Shanghai’s two-month Covid lockdown in 2022.
China’s best chance of maintaining economic growth may be to further expand its trade surplus in manufactured goods, which already accounts for a tenth of the country’s economy. The Ministry of Commerce issued a directive this winter to increase exports.
Shenzhen in southeast China – BYD’s hometownthe country’s dominant electric vehicle maker – issued 24 city directives last week aimed at boosting overseas auto sales, especially by helping companies in the city buy more trains can transport cars to distant markets.
But the United States and the European Union have expressed concern about job losses and have begun taking measures to limit trade with China. And falling prices in China mean that increases in the volume of the country’s exports and China’s share of world trade may not translate into more money.
Vivian Vuong Contributing reports from Beijing. Ly Huu, Claire Fu And Amy Chang Chien contributing research.
