China’s top leaders set an ambitious economic growth target for 2024, as they tried to reinforce their conviction in an economy facing its biggest challenges in decades.
But they have announced only modest steps to boost growth, refraining from taking the kind of bold steps the business world is seeking to address the housing crisis, waning Chinese household confidence and investor distrust.
Premier Li Qiang, the country’s second-ranking official after Xi Jinping, said in his report to the annual session of the legislature on Tuesday that the government would aim for economic growth of “around 5 percent.” It’s the same goal China’s leaders set for themselves last year, when official statistics showed the country’s gross domestic product grew 5.2 percent.
The central government’s spending program has changed little. The budget deficit was set at 3 percent of economic contribution – the same target as early last year. Last year’s deficit was eventually raised to 3.8% to allow for more borrowing, which the government says could happen again in 2024.
The deficit is large 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 the budget documents released on Tuesday was a measure to strengthen the country’s social safety net or introduce other policies, such as vouchers or vouchers, which would directly address Chinese consumers’ very low confidence and reluctance to spend money.
“There is a lot of positive noise for the economy, but not a lot of concrete proposals on how to solve the country’s growing pains,” said Neil Thomasmember of the Asia Society’s Center for China Analysis.
Some economists question whether growth was as high last year as China claims. Furthermore, last year brought a modest rebound as strict “zero Covid” measures were in place until December 2022. Achieving the same growth this year, without the benefit of that rebound, could be much more difficult.
Consumers and investors are skeptical about the prospects for a lasting recovery. China’s stock markets fell sharply in January and early February, before recovering over the past four weeks as the government took steps to encourage stock buying. But Mr. Li maintained that China was on the right track.
China has “resisted external pressures and overcome internal difficulties,” Li told the National People’s Congress, a Communist Party-controlled body that approves laws and budgets. “The economy is generally rebounding.”
The National People’s Congress, a week-long choreographed event, typically focuses on the government’s short-term initiatives, particularly economic goals. China’s growth target and the means by which the government is trying to achieve it are the subject of intense international scrutiny this year.
Communist Party leaders are trying to restore confidence in China’s long-term prospects and tap new growth engines, such as clean energy and electric vehicles. Li’s report also notes new spending on artificial intelligence and a plan to “step up research into disruptive and cutting-edge technologies.”
But those efforts could be hampered by a tangle of problems surrounding the real estate sector: a glut of apartments, real estate companies and local governments saddled with debt, and home buyers reluctant to invest money in the real estate when values fall.
It could be difficult to meet China’s growth target this year without another big round of bond-fueled government spending.
“I think they’re being careful not to turn the taps on too much before seeing if this kind of funding has the desired effects,” said Eswar Prasad, an economist at Cornell University.
Many local and provincial governments in China are struggling with heavy debts. Mr Li said the central government would only allow a slight 2.6 percent increase in bond sales to help these governments.
Economists and global credit agencies have long recommended that China strengthen its safety net, a move that could improve weak consumer confidence and persuade Chinese households to save less and start spending more.
But officials are wary of increasing social spending when they already have to figure out how to cope with an aging society with fewer workers to support each elderly person. China’s birth rate has almost halved since 2016 and around 15% of the population is 65 years or older — a figure that is expected to reach more than 20% by 2030.
Tao Wang, head of Asia economic research at UBS bank, said the government needed to do more to help the property market. Dozens of real estate developers have gone bankrupt in recent years, and widespread defaults “hurt not only 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,” she added.
China’s economy also faces strong forces from outside its borders. Government officials in the United States and Europe are working to contain Chinese trade practices that they view 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 during more than a decade of Mr. Xi’s rule.
China’s military spending would increase by 7.2% in 2024 – the same percentage increase as last year – and reach around $231 billion, according to the new budget. China has been increasing its military spending for several decades, now the second largest in the world after the United States. Washington approved a military budget of $886 billion for its last fiscal year.
The economy’s biggest challenge lies in the vast construction sector, which is in free fall after a decades-long housing bubble burst over the past two years.
Home sales by the country’s 100 largest real estate developers fell 60 percent in February compared to the same month last year. Consumer confidence in China has not recovered after falling precipitously during Shanghai’s two-month lockdown in 2022.
China’s best chance of maintaining economic growth may be to further increase its trade surplus in the manufactured goods sector, which already accounts for a tenth of the country’s economy as a whole. The Ministry of Commerce published guidelines this winter aimed at strengthening exports.
Shenzhen in southeast China – the hometown of BYD, the country’s top electric vehicle maker – last week issued 24 municipal guidelines aimed at boosting overseas car sales, including helping businesses of the city to buy more ships capable of transporting 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 gains in the physical volume of the country’s exports and China’s share of global trade may not translate into more money.
Viviane Wang contributed reporting from Beijing. Read you, Claire Fu And Amy Chang Chien contributed to the research.
