Facing the nation’s deepest economic challenges in years, China’s leadership announced on Tuesday a GDP growth target of around 5 percent, the same as last year’s. However, experts have called it “ambitious” and warned it would be “more challenging” to meet.
For one, China will not gain the one-time benefits of lifting draconian COVID-19 restrictions, as it did in 2023. Beijing is also unwilling to offer the extra policy support that the world’s second-largest economy needs, analysts say.
“There was little surprise that the GDP growth target was set at around 5 percent again, as lowering the target would have further weakened confidence,” Lynn Song, chief economist for Greater China at ING, wrote in a note and viewed by The Epoch Times on Tuesday.
“With that said, it will be a more challenging path to repeat [that] growth in 2024, as the base effect becomes less supportive, and as many of the boosts to the economy coming out of anti-epidemic measures will gradually wane.”
Mr. Song added that the road to rebuilding trust in China’s struggling economy will be a long and arduous process, with policy rollouts in the following weeks and months playing a significant role in determining when that will occur.
Delivering his first work report at the annual meeting—known as “two sessions”—of China’s rubber-stamp legislature, the National People’s Congress (NPC), Premier Li Qiang promised a “new leap forward” by supporting developing sectors and industries such as electric vehicles, new materials, commercial spaceflight, quantum technology, and life sciences. He also set an inflation target of 3.0 percent, which was in line with 2023.
The key policy stance of “strengthening and improving the efficiency of proactive fiscal policy” was retained as well, with a minor change from “strengthen” (as was stated in 2023) to “moderately strengthen.”
On the monetary policy front, “prudent monetary policy” remains the top objective. This year, China’s central bank, the People’s Bank of China (PBOC), has loosened monetary policies by lowering the minimum reserve rate (RRR) by 50 basis points and the five-year Loan Prime Rate by 25 basis points.
“While markets may have hoped for an adjustment to allow for more aggressive easing, this stance signals that the room for further monetary policy easing will be somewhat limited before global central banks start easing,” noted Mr. Song.
From the yuan-dollar exchange rate perspective, the stance remained unchanged from 2023, given that the premier’s report discussed maintaining the rate at a “reasonable and balanced level.”
Implications for Investors
The announcements come as Beijing seeks to bolster economic confidence while dealing with a weak property sector, deflationary pressures, a flight of foreign money, a bruised stock market, and a record-low birth rate.China’s economy officially grew 5.2 in the year 2023, but the economy contracted for five straight months, while GDP performance was partly due to China’s stimulus measures and a low base.
Hence, according to Capital Economics, the targeted growth rate of 5 percent looks “pretty ambitious because it will require much stronger quarter-on-quarter (QQ) growth to achieve the targets.”
Analysts reckon the average GDP QQ growth rates for the rest of the year will need to be around 1.3 percent, requiring a significant lift from relevant stimuli.
Another analyst added that the NPC meeting announcements did not signal that the Chinese leaders “are going to do large-scale stimulus.”
The absence of substantial stimulus measures has disappointed analysts.
“It will be hard for China to achieve 5 percent growth in 2024, given [that there was] no increase in policy support,” Carlos Casanova, the Hong Kong-based senior economist at Union Bancaire Privée, wrote in a note and viewed by The Epoch Times on Tuesday.
“China will struggle to attain a 5 percent growth rate in 2024 without further policy help. Chinese equities may face an adjustment in profit expectations from current levels of 13 percent as the environment may not support double-digit gains,” he noted.
Yet, while Hong Kong’s stock market ended higher on Wednesday, with the benchmark Hang Seng Index up 1.7 percent at close, the Shenzhen Component Index closed 0.22 percent lower, and the blue-chip CSI 300 Index fell 0.42 percent.
No ‘Positive Surprises’
According to Raymond Wong, chief economic strategist of Saxo Bank, a Danish investment bank specializing in online trading and investment banking, the Chinese premier’s report and the first day of the NPC conference may have partly met some expectations but provided no “positive surprises.”Mr. Wong said in a note that investors are looking forward to learning more about these measures during the next press conferences when officials are expected to respond to questions and share specifics on China’s industrial strategy, goals, and financial system reform.
He wrote that until then, “investors [will] remain cautious due to the lack of reform and clear strategies to restore the trend growth of the Chinese economy.”
Selling (of stocks and bonds) by investors may also escalate to test Beijing’s determination to sustain the market, he added.
