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China vows to ‘transform’ economy, targets stable growth of around 5%

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China vows to 'transform' economy, targets stable growth of around 5% © Reuters. Security personnel stand guard, on the day of the opening session of the Chinese People’s Political Consultative Conference (CPPCC), outside the Great Hall of the People, in Beijing, China March 4, 2024. REUTERS/Tingshu Wang

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By Antoni Slodkowski, Andrew Hayley and Yuhan Lin

BEIJING (Reuters) -China will target economic growth of around 5% this year as it works to transform its development model, curb industrial overcapacity, defuse property sector risks and cut wasteful local government spending, Premier Li Qiang said on Tuesday.

Li delivered his maiden work report at the annual meeting of the National People’s Congress (NPC), China’s rubber-stamp legislature, in the cavernous Great Hall of the People in Tiananmen Square.

The growth target was similar to last year’s but will require stronger government stimulus for China to reach it, as the economy remains reliant on state infrastructure investment that has led to a mountain of municipal debt.

A stuttering post-COVID recovery in the past year has laid bare China’s deep structural imbalances, from weak household consumption to increasingly lower returns on investment, prompting calls for a new development model.

A property crisis, deepening deflation, a stock market rout, and mounting local government debt woes have increased the pressure on China’s leaders to respond to these calls.

“We should not lose sight of worst-case scenarios and should be well prepared for all risks and challenges,” Li said.

“In particular, we must push ahead with transforming the growth model, making structural adjustments, improving quality, and enhancing performance.”

There were no immediate details on the changes China intended to implement.

Chinese stocks recovered earlier losses to trade largely unchanged on the day and the yuan was flat, suggesting investors were unimpressed with the stimulus plans and reform promises.

“Policymakers seem happy with the current trajectory,” said Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management, adding the economic targets were “as expected”.

“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.”

In setting the growth target, policymakers “have taken into account the need to boost employment and incomes and prevent and defuse risks,” Li said, adding China intended to have a “proactive” fiscal stance and “prudent” monetary policy.

China plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year. But crucially, it plans to issue 1 trillion yuan ($139 billion) in special ultra-long term treasury bonds, which are not included in the budget.

The special bond issuance quota for local governments was set at 3.9 trillion yuan, versus 3.8 trillion yuan in 2023. China also set the consumer inflation target at 3% and aims to create over 12 million urban jobs this year, keeping the jobless rate at around 5.5%.

“The Chinese government does not want to stimulate the economy too much, … and also wants to keep leverage relatively low,” said Xia Qingjie, economics professor at Peking University.

Analysts expect China to lower its annual growth ambitions in the future. The International Monetary Fund projects China’s economic growth at 4.6% this year, declining further in the medium term to about 3.5% in 2028.

TAIWAN

The work report also said China would “be firm in advancing the cause of China reunification”, dropping the mention of “peaceful reunification” in previous reports.

Officials vowed to “resolutely oppose separatist activities aimed at ‘Taiwan independence’ and external interference”.

China will boost defence spending by 7.2% this year, the same rate as last year, marking the ninth consecutive single-digit annual increase.

The defence budget is closely watched by China’s neighbours and the U.S, who are wary about Beijing’s strategic intentions and the development of its armed forces as tensions rose sharply in recent years over Taiwan.

‘NEW PRODUCTIVE FORCES’

China will continue to pour resources into tech innovation and advanced manufacturing, in line with President Xi Jinping’s push for “new productive forces,” Li said.

It will lift all foreign investment restrictions in the manufacturing sector and relax market access restrictions in service industries such as telecoms and medical services, the state planner said in a separate report.

Beijing will also formulate development plans for emerging industries, including quantum computing, big data and artificial intelligence and will continue striving towards achieving self-sufficiency in technology.

Some analysts have criticised China’s policy focus on high-tech manufacturing, saying it exacerbates industrial overcapacity, deepens deflation and heightens trade tensions with the West.

Reform advocates, worried about record low consumer confidence and plunging investor and business sentiment, want China to return to a path of pro-market policies and boost household demand.

($1 = 7.1987 renminbi)

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