BEIJING – China’s leaders have been cautious about the country’s economic recovery outlook after lifting many Covid-19 restrictions on business activity late last year.
Beijing on Sunday announced a target for gross domestic product growth of “around 5%” for 2023, with only a modest increase in fiscal support.
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“The government’s conservative 5% growth target for 2023 recognizes that China faces headwinds to growth,” said Martin Petch, vice president and senior credit officer at Moody’s Investors Service. “These include the impact of slowing global growth on China’s exports and risks related to the property sector and local government debt.”
“The government’s only modest expansion in fiscal support and targeted monetary measures suggest that long-term concerns, including leverage and financial stability constraints, remain important elements of the long-term policy mix,” Petch said.
There are still many factors inhibiting the recovery and growth of consumption… Restoring the growth of investment in real estate is a difficult struggle.
Report of the National Development and Reforms Commission
Premier Li Keqiang’s government performance report on Sunday highlighted the growing uncertainty in the international environment. A separate report by the economic planning agency, the National Development and Reform Commission (NDRC), details the country’s challenges.
“There are still factors inhibiting the recovery and growth of consumption,” the report said. “Restoring real estate investment growth is an uphill battle.”
“Some local governments are struggling to recover and are facing serious financial imbalances,” the report said. “Debt risks arising from local government funding platforms need to be urgently addressed.”
Consumption is important
Consumption is likely to become the main driver of economic growth this year, Li Chunlin, deputy director of the NDRC, told reporters on Monday.
He added that the commission has many tools to boost consumer spending.
GDP grew by just 3% last year, well below the official target, as Covid-19 controls and the property slump dampened growth. Retail trade decreased by 0.2% in 2022.
A shopping mall in Qingzhou, Shandong Province will host the opening ceremony of the National People’s Congress on Sunday, March 5, 2023.
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The impact of the pandemic has weakened and a recovery in retail sales can only fuel growth, said Zong Liang, chief researcher at the Bank of China.
Overall, while some increase in fiscal support is needed, it is important not to “blindly” expand such support, he said, leaving room for future policy moves. That’s according to CNBC’s translation of his Mandarin words.
Retail sales rose 12.5% in 2021 after declining in 2020. GDP grew by 8.1% in 2021.
The pressure on the economy has eased significantly this year and the economy is likely to grow from a low level, said Xu Hongcai, deputy director of the Economic Policy Commission of the Chinese Political Science Association. “The most important thing is to increase the quality of growth.”
The general recovery of the economy will help increase budget revenues and increase demand for workers, he said. But he pointed to “the biggest pressure this year on foreign trade.”
Most economists expect China’s exports to grow barely this year at best. This is due to the decrease in demand for Chinese goods as a result of the slowdown of the US and European economies.
“fiscal buffer”
China’s deficit-to-GDP ratio is expected to rise to 3 percent from last year’s 2.8 percent on Sunday. The country also increased its annual quota of special-purpose bonds by 150 billion yuan to 3.8 trillion yuan, or about $551.12 billion.
The measures will serve as a “fiscal buffer” rather than an aggressive one, said Susan Chu, senior director at S&P Global Ratings.
“Because China has not fully returned to consumption [economy]”, he said. “Lots of external challenges, ownership slowdown.”
The economic targets announced on Sunday are based on directives set in December at a high-level meeting called the Central Economic Working Conference.
While the policy direction is clear, more confidence-building signals are needed, said Wang Jun, director of the China Forum of Chief Economists. He said such details could be revealed during China’s annual parliamentary session in the next few days.
This year’s meeting is scheduled to formalize a new prime minister and other government leaders, as well as issue a “reform plan” for the ruling Chinese Communist Party and state institutions.
