China’s top leaders have set an ambitious 2024 economic growth target as they seek to boost confidence in an economy facing its biggest challenges in decades.
But they announced only modest measures to boost growth, refraining from the kind of bold moves the business community is looking for to tackle a housing crisis, a loss of confidence among Chinese households and investor wariness.
Premier Li Qiang, the country’s No. 2 official after Xi Jinping, said in his report Tuesday to the annual session of the legislature that the government would aim for economic growth of “around 5 percent.” That’s the same target China’s leadership set for last year, when official statistics ended up showing the country’s gross domestic product grew by 5.2 percent.
The central government’s spending program showed little change. The budget deficit was set at 3% of economic inflow — the same target as early last year. Last year’s deficit eventually rose to 3.8% to cover more borrowing, which the government signaled could happen again in 2024.
The deficit is important because the more the government borrows, the more it can spend on initiatives that could stimulate the economy.
Conspicuously missing from the prime minister’s agenda and budget documents released on Tuesday was a move to shore up the country’s social safety net or introduce other policies, such as vouchers or vouchers, that would directly address the very weak confidence and reluctance of Chinese consumers to spend money.
“There is a lot of positive noise about the economy, but not a lot of concrete proposals on how to solve the country’s development difficulties,” said Neil Thomas, a fellow at the Center for China Analysis of the Asia Society.
Some economists question whether growth was actually as high last year as China claims. In addition, 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 this recovery, could be much more difficult.
Consumers and investors were cautious about the prospects for a sustained recovery. China’s stock markets fell sharply in January and early February before recovering in the past four weeks as the government took steps to encourage buying stocks. But Mr Li argued that China was on the right track.
China has “withstood external pressures and overcome internal difficulties”, Mr Li told the National People’s Congress, a body controlled by the Communist Party that approves laws and budgets. “The economy is generally recovering.”
The National People’s Congress, a choreographed weekly event, usually focuses on the government’s short-term initiatives, particularly economic goals. China’s growth goal 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 harness new growth drivers such as clean energy and electric vehicles. Mr Li’s report also highlighted new spending on artificial intelligence and a plan to “intensify research into disruptive and cutting-edge technologies”.
But those efforts could be bogged down by a host of problems in the housing sector: a glut of apartments, debt-ridden real estate companies and local governments, and homebuyers reluctant to sink money into real estate when values ​​fall.
Meeting China’s growth target this year may be difficult without another big round of bond-fueled government spending.
“I think they’re cautious about opening the faucets too wide before they see if this kind of funding has the desired effect,” said Eswar Prasad, an economist at Cornell University.
Many local and provincial governments across China are struggling with large debts. Mr Lee said the central government would only allow a small 2.6 percent increase in bond sales to help those governments.
Economists and international lending agencies have long recommended that China strengthen its safety net, a change that could improve weak consumer confidence and persuade Chinese households to save less and start spending more.
But officials are reluctant to increase social spending when they already have to figure out how to deal with an aging society with fewer workers to support every senior. China’s birth rate has nearly halved since 2016, and about 15 percent of the population is aged 65 or older — a number that may rise to more than 20 percent by 2030.
Tao Wang, head of Asia economic research for UBS, said the government needs to do more to help the property market. Dozens of real estate developers have collapsed in recent years, and widespread bankruptcies “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 also faces powerful forces outside its borders. Government officials in the United States and Europe are working to curb Chinese trade practices they see as unfair or threats to national security. And many multinational executives remain troubled by the ever-increasing emphasis on domestic security and surveillance that Beijing has adopted in more than a decade of Mr. Xi’s rule.
China’s military spending will rise 7.2 percent in 2024 – the same growth rate as last year – to about $231 billion, according to the new budget. China has been increasing its military spending, now the second largest in the world after the United States, for several decades. Washington approved a military budget of $886 billion for the last fiscal year.
The economy’s biggest difficulty lies in the massive construction sector, which is in turmoil after a decades-long housing bubble burst over the past two years.
Home sales by the nation’s 100 largest real estate developers plummeted 60% in February from the same month last year. Consumer confidence across China has not recovered after falling sharply during the two-month Covid lockdown in Shanghai in 2022.
China’s best chance to sustain 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. The Ministry of Commerce has issued instructions this winter aimed at boosting exports.
Shenzhen in southeast China – home to BYD, the country’s dominant electric vehicle maker – issued 24 municipal directives last week to boost overseas car sales, mainly by helping companies in the city buy more ships that can transport cars to distant markets.
However, 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 gains in the country’s physical export volume and China’s share of global trade may not translate into more money.
Vivian Wang contributed reporting from Beijing. Li You, Claire Fu and Amy Chang Chien contributed to the research.
