China set a modest economic growth target of around 5% for the year, a sign the nation’s top leaders are still concerned about the recovery, given weak consumer confidence, declining exports and a housing market still under pressure.
(Bloomberg) — China set a modest economic growth target of around 5% for the year, a sign the nation’s top leaders are still concerned about the recovery, given weak consumer confidence, declining exports and a housing market still under pressure.
Premier Li Keqiang announced the goal for gross domestic product in his final government work report to the National People’s Congress — the annual parliamentary gathering — on Sunday. Economists had projected a target of higher than 5%.
The GDP target compares to last year’s goal of around 5.5%, which China missed by a large margin after Covid outbreaks and restrictions, as well as the property crisis, dragged growth down to just 3%. The median consensus is for the economy to expand 5.3% this year.
The growth target is a key indication of how China’s leaders will shape policy for 2023 now that the country has abandoned its zero tolerance approach to Covid and is working to restore confidence in the economy. Investors are watching for signs authorities will shift their stance on fiscal and monetary stimulus, which in turn could have implications for global commodity prices and growth.
The state of the economy and its continued improvement will be of major significance to President Xi Jinping’s new leadership team as he looks to further consolidate the Communist Party’s hold over the world’s second-biggest economy. This year’s NPC will be the last for mainstays including Premier Li, with Xi ally Li Qiang, already the party’s No. 2, expected to take his place.
The GDP target “is on the conservative side,” Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd. “Because the Covid policy has been adjusted, there’s no urgency for them to run another round of big economic stimulus.”
The government work report as well as the budget released on Sunday suggests fiscal support will be restrained. The target for the official deficit — based on a narrow definition of the budget that covers only general revenue and spending — was raised to 3% of GDP for this year from 2.8%.
However, local governments are likely to scale back major investments. The quota for special local bonds, used mainly to finance infrastructure projects, was set at 3.8 trillion yuan ($550 billion) for this year — smaller than the total issuance of 4.04 trillion yuan.
Beijing has already suggested any further economic support would be limited. The People’s Bank of China has vowed to refrain from using “flood-style” stimulus, likely meaning aggressive rate cuts aren’t on the table this year. The finance minister has said fiscal conditions will gradually improve as the economy rebounds, and has promised that any expansion in fiscal expenditure will be moderate.
The report also highlighted the importance of national security, in line with signals from the ruling party’s congress last year. China’s defense spending will rise at the fastest pace in four years this year, climbing 7.2% to 1.55 trillion yuan.
Technology policy will focus on “self-reliance and self-strengthening,” according to the report, with the government looking to play an organizing role in key technology breakthroughs.
The report glossed over some of the biggest ongoing challenges China and the world are facing, such as the pandemic and Russia’s war in Ukraine.
“As a responsible major country, China played significant and constructive roles in enhancing international Covid-19 cooperation and addressing global challenges and regional hotspot issues, thus making important contributions to global peace and development,” Li said, without elaborating on what regional issues he was referring to.
The government is targeting an increase in new jobs, although will allow for a higher jobless rate. That suggests officials are paying more attention to the quality of economic growth, not just its speed, according to Zhou Hao, chief economist at Guotai Junan International Holdings.
“As the job creation also matters for the domestic consumption, a higher target for 2023 means that the Chinese authorities see the importance of consumption which will help unleash long-term growth potential,” he said.
China’s economic rebound this year has been off to a solid start. The initial recovery was a bit cautious in January as a chaotic end to Covid restrictions caused a spike in infections and many businesses closed for the Lunar New Year holiday. Travel congestion has picked up since, and February manufacturing and services activity rebounded sharply.
A sustained economic rebound is far from certain, no matter how strong the recovery has been.
Export demand continues to languish, while the property market has yet to stabilize even with promising signs from home sales. Also key to the outlook will be how quickly business and consumer confidence can bounce back, with a complicating factor being continued US-China tensions over technology and geopolitics.
–With assistance from Colum Murphy, Yujing Liu, Tom Hancock, James Mayger, Dong Lyu and Brendan Scott.
(Updates with comments from analysts)
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