China’s top leaders have set an ambitious target for economic growth in 2024, seeking to bolster belief in an economy facing its biggest challenges in decades.
But they announced only modest measures to spur growth, refraining from the kind of bold moves the business sector was seeking to address the housing crisis, loss of confidence among Chinese families and investor wariness.
Premier Li Qiang, the country’s second-ranking official after Xi Jinping, said in his report to the legislature’s annual session on Tuesday that the government will seek economic growth of “about 5 percent.” This is the same goal that the Chinese leadership set for itself last year, when official statistics showed that the country’s gross domestic product had grown by 5.2%.
The central government’s spending program showed little change. The fiscal deficit was set at 3% of economic input, the same target as at the beginning of last year. Last year’s deficit was eventually raised to 3.8% to deal with higher borrowing, which the government has signaled could happen again in 2024.
The deficit matters because the more the government borrows, the more it can spend on initiatives that could boost the economy.
Conspicuously missing from the prime minister’s agenda and budget documents released Tuesday was a move to strengthen the country’s social safety net or introduce other policies, such as vouchers or coupons, that would directly address consumers’ weak confidence and reluctance to spend money. Chinese.
“There are many positive signs for the economy, but not many concrete proposals on how to solve the country’s growth difficulties,” he said Neil Thomasmember of the Center for China Analysis of the Asia Society.
Some economists question whether growth last year was actually as high as China claims. Furthermore, last year brought a modest recovery because strict “zero Covid” measures were in place until December 2022. Achieving the same growth this year, without the benefit of that recovery, could be much more difficult.
Consumers and investors have been skeptical about the prospects for a lasting recovery. Stock markets in China fell heavily in January and early February, before recovering in the past four weeks as the government took measures to encourage stock buying. Mr. Li argued that China is on the right path, but acknowledged that the country faces challenges.
“The foundation for China’s sustained economic recovery and growth is not sufficiently strong, as evidenced by the lack of effective demand, overcapacity in some sectors, low public expectations, and many persistent risks and hidden dangers,” he told Congress national people. Body controlled by the Communist Party that approves laws and budgets.
The annual session of congress, a weeklong choreographed event, typically focuses on the government’s short-term initiatives, particularly economic goals. This year, China’s growth target and how the government is trying to achieve it are under intense international scrutiny.
Communist Party leaders are trying to restore confidence in China’s long-term prospects and tap into new growth drivers, such as clean energy and electric vehicles. Mr Li’s report also flags new spending on artificial intelligence and a plan to “intensify research into disruptive and frontier technologies”.
But those efforts could be hampered by a tangle of real estate problems: a glut of apartments, struggling real estate companies and local governments, and homebuyers reluctant to put money into real estate when values are falling.
Reaching China’s growth target this year could be difficult without another big bond-fueled government spending.
“I think they are wary of opening the spigots too much before seeing whether this type of financing has the desired effects,” said Eswar Prasad, an economist at Cornell University.
Many local and provincial governments across China are struggling with heavy debt. Mr Li said the central government would only give a small 2.6% increase in bond sales to help these governments.
Economists and global credit agencies have long recommended that China strengthen its safety net, a change that could improve flagging consumer confidence and convince Chinese families to save less and start spending more.
But officials are willing to increase social spending when they need to figure out how to deal with an aging society with fewer workers to support each elderly person. China’s birth rate has nearly halved since 2016, and about 15% of the population is aged 65 years or older – a figure that is likely to grow to more than 20% by 2030.
Tao Wang, head of Asian economic research for UBS bank, said the government needed to do more to help the property market. Dozens of property developers have gone bankrupt in recent years, and the widespread defaults “have not only hurt developers but also homebuyers and their confidence,” Ms. Wang said.
“They need to do more because the downward pressure on the economy remains quite severe,” he added.
China’s economy is also facing strong forces from outside its borders. Government officials in the United States and Europe are working to curb Chinese trade practices they consider unfair or threats to national security. And many multinational executives remain concerned by the ever-increasing emphasis on internal security and surveillance that Beijing has adopted in more than a decade of Xi’s rule.
China’s military spending would rise 7.2% in 2024 – the same percentage increase as last year – and reach about $231 billion, the new budget says. For several decades, China has increased its military spending, now the second largest in the world after the United States. Washington approved a military budget of $886 billion for its latest budget year.
Chinese officials may wait to make further changes to economic policies until Xi agrees to the Communist Party’s Central Committee. The meeting has not been scheduled but is expected to be held later this year.
The economy’s biggest challenge lies in the vast construction sector, which is in a nosedive after the burst of a decade-long housing bubble over the past two years.
Home sales by the country’s 100 largest real estate developers plunged 60% in February compared to the same month last year. Consumer confidence across China has not recovered after falling precipitously 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 entire economy. This winter the Ministry of Commerce issued directives aimed at boosting exports.
Shenzhen in southeast China – the hometown of BYD, the country’s top electric vehicle maker – issued 24 municipal directives last week to boost overseas car sales, in particular by helping companies in the city buy more ships that can transport cars to distant markets.
But the United States and the European Union have expressed concern about job losses and have begun taking steps to limit trade with China. And falling prices in China mean that increases in the country’s physical export volume and China’s share of world trade may not translate into more money.
Viviana Wang contributed reporting from Beijing. Li Tu, Claire Fu AND Amy Chang Chien contributed to the research.
