Chinese Premier Li Qiang revealed an ambitious economic growth target for 2024, aiming for approximately 5%, emphasizing the need to revamp the country’s development approach and address risks stemming from bankrupt property firms and indebted cities.
Presenting his inaugural work report at the National People’s Congress, China’s parliamentary assembly, Li additionally signaled increased defense expenditure and adopted a firmer stance regarding Taiwan.
By setting a growth target akin to last year’s, which becomes more challenging amidst a waning post-COVID recovery, Beijing indicates a preference for prioritizing growth over reforms, despite Premier Li’s commitment to bold new policies, analysts noted.
“It’s more difficult to achieve 5% this year than last year because the base number has become higher, indicating that the top leaders are committed to supporting economic growth,” said Tao Chuan, chief macro analyst at Soochow Securities.
The uneven growth experienced last year exposed China’s profound structural disparities, spanning from subdued household consumption to diminishing returns on investment, sparking demands for a revamped growth paradigm.
The year commenced with a stock market downturn and deflationary pressures not witnessed since the global financial crisis of 2008-09.
Persistent property market turmoil and challenges related to local government debt intensified, placing greater impetus on Chinese leaders to devise fresh economic strategies.
As the allure of China’s economic prowess wanes, some economists draw parallels with Japan’s lost decades from the 1990s, advocating for market-oriented reforms and initiatives aimed at augmenting consumer incomes.
“We should not lose sight of worst-case scenarios,” Li said in the Great Hall of the People in Tiananmen Square.
“We must push ahead with transforming the growth model, making structural adjustments, improving quality, and enhancing performance.”
There was a lack of specific timelines or concrete details regarding the structural changes China intends to implement, with Premier Li also underscoring stability as “the foundation for all our endeavors.”
While acknowledging the formidable nature of the target, Li emphasized the necessity for a “proactive” fiscal stance and “prudent” monetary policy. He highlighted that the target takes into account “the imperative to enhance employment and incomes, as well as to prevent and mitigate risks.”
The International Monetary Fund forecasts China’s 2024 growth at 4.6%, declining to around 3.5% by 2028. Chinese stocks (CSI300) and the yuan exhibited minimal movement in response.
“Policymakers seem happy with the current trajectory,” said Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management.
“That’s disappointing for those that hoped for a bigger push… There’s rhetorical support for local government debt and the property sector, but the key is how this is applied in practice.”
Moderate Stimulus
China intends to reduce its budget deficit to 3% of economic output, down from the revised 3.8% of the previous year. Notably, it plans to issue 1 trillion yuan ($139 billion) in special ultra-long term treasury bonds, which are excluded from the budget.
The special bond issuance quota for local governments has been set at 3.9 trillion yuan, compared to 3.8 trillion yuan in 2023. Additionally, China has set the consumer inflation target at 3% and aims to generate over 12 million urban jobs this year, aiming to maintain the jobless rate at around 5.5%.
“China is unlikely to do bazooka-style stimulus,” said Tommy Xie, head of Greater China research at OCBC Bank. “There are still a lot of constraints at the moment in terms of how China can support the economy via fiscal expenditure.”
The budgetary proposal entails a 7.2% rise in defense spending this year, mirroring the increase seen in 2023. This figure garners significant attention from the U.S. and China’s neighboring countries amidst escalating tensions over Taiwan, amid concerns about China’s strategic motives.
President Xi Jinping’s tenure has witnessed a doubling of China’s defense budget, with this year marking the 30th consecutive year of escalating defense expenditure, according to research by the International Institute for Strategic Studies. Premier Li’s report notably omits prior references to “peaceful reunification” with Taiwan.
“China is showing that in the coming decade it wants to grow its military to the point where it is prepared to win a war if it has no choice but to fight one,” said Li Mingjiang, a defence scholar at the Rajaratnam School of International Studies.
New Productive Forces
Addressing a looming demographic challenge threatening the transition to a consumer-driven growth model, China’s state planner pledges to enhance policies supporting childbirth and bolster benefits and pensions for the expanding elderly population.
Premier Li commits to funding “justified” projects in the property sector and increasing social housing to alleviate concerns regarding unfinished properties.
While emphasizing the need to reduce industrial overcapacity, Li also highlights the allocation of resources for technology innovation and advanced manufacturing, aligning with President Xi’s agenda for “new productive forces.”
China aims to remove all foreign investment restrictions in the manufacturing sector and develop plans for quantum computing, big data, and artificial intelligence to achieve technological self-reliance.
However, some analysts criticize China’s manufacturing-focused policies, arguing that they exacerbate overcapacity, deepen deflation, and escalate trade tensions with the West.