BEIJING – Chinese Premier Li Keqiang on Tuesday announced an ambitious 2024 economic growth target of 5%, pledging measures to change the country's growth model and mitigate risks posed by bankrupt property developers and indebted cities.
Delivering his first work report at the annual meeting of China's rubber-stamp parliament, the National People's Congress, Li flagged higher defense spending while toughening his rhetoric on Taiwan.
In setting a similar growth target as last year, which will be difficult to achieve as the post-Covid recovery loses steam, Beijing is signaling that it is prioritizing growth over any reforms, even as Li promises bold new policies, analysts said.
„Achieving 5% this year is more difficult than last year because the base number has become higher, which indicates that top leaders are committed to supporting economic growth,” said Tao Chuan, chief macro analyst at Suzhou Securities.
Uneven growth last year exposed China's deep structural imbalances, from weak household consumption to low returns on investment, prompting calls for a new growth model.
China started the year with a stock market slump and deflation not seen since the 2008-09 global financial crisis. The property crisis and local government debt woes continued, increasing pressure on China's leaders to come up with new economic policies.
As China's economic miracle rapidly fades, some economists have called for pro-market reforms and measures to boost consumer incomes, drawing comparisons to Japan's lost decades since the 1990s.
„We must not lose sight of the dire situations,” Li said at the Great Hall of the People in Tiananmen Square.
„We must move forward to change the growth model, make structural changes, improve quality and improve efficiency.”
There were no timelines or concrete details for the structural changes China intends to implement, however, Li emphasized stability as „the basis of everything we do.”
Acknowledging that achieving the target „will not be easy”, Li acknowledged that „effective” fiscal stance and „prudent” monetary policy are needed. The goal is „the need to increase employment and income and prevent and reduce risks,” Li said.
The International Monetary Fund forecasts China's 2024 growth of 4.6%, slowing to 3.5% in 2028.
Chinese stocks and the yuan were largely unchanged.
„Policymakers seem happy with the current path,” said Ben Bennett, Asia-Pacific investment strategist at Legal and Public Investment Management.
„This is disappointing for those who expected more impetus… There is rhetorical support for the local government debt and property sector, but what matters is how it is applied in practice.”
Moderate stimulation
China plans to run a budget deficit of 3% of economic output, up from last year's revised 3.8%. In particular, 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 allocation for local governments is 3.9 trillion yuan, set at 3.8 trillion yuan in 2023. China has also set a consumer inflation target of 3% and aims to create more than 12 million urban jobs this year. 5.5%
„China is unlikely to do a bazooka-style stimulus,” said Tommy Xie, head of Greater China Research at OCBC Bank. „There are still a lot of constraints on how China can support the economy through fiscal spending.”
The budget plans include a 7.2% increase in defense spending this year, the same as in 2023 — a move closely watched by neighbors the US and China, which are wary of its strategic intentions as tensions rise over Taiwan.
China's defense budget has doubled since President Xi Jinping took office a decade ago. This year marks the 30th year of increasing defense spending, according to research by the Institute for International Strategic Studies.
Li's statement also abandoned earlier references to „peaceful reunification” with Taiwan.
„China has shown in the coming decade that it wants to build up its military to the point where it is ready to win a war if it has no choice but to fight one,” said Li Mingjiang, a defense scholar at the Rajaratnam School of International Affairs. studies.
'New Forces of Production'
Faced with a population crisis that threatens to shift to a consumer-led growth model, China's state planner has pledged to improve policies that support childbirth, while boosting benefits and basic pensions for its growing elderly population.
In the property sector, Li pledged to fund „reasonable” projects and provide more social housing as Beijing looks to address a backlog of unfinished properties that has worried home buyers.
While Li said China wants to rein in industrial overcapacity, he also flagged more resources for technological innovation and advanced manufacturing, in line with Xi's push for „new productive forces,” Li said.
As China lifts all foreign investment restrictions in manufacturing and strives for technological self-sufficiency, it will develop development plans for quantum computing, big data and artificial intelligence.
Some analysts have criticized China's policy focus on manufacturing, which is driving industrial overcapacity, deepening deflation and increasing trade tensions with the West.
„The pursuit of momentum has led to a change in the pattern of growth,” said Hu Yuexio, chief economist at Shanghai Securities. Reuters