China’s 5% growth target achievable, state planner says

Beijing — The head of China’s state planner says the government’s 5% economic growth target for 2024, which many analysts say is ambitious, is achievable and he expects the world’s second-largest economy to have a good first quarter.

Speaking at a briefing on the sidelines of the annual parliament meeting in Beijing with China’s finance minister, commerce minister, central bank chief and head of the securities regulator, Zheng Shanjie said officials would step up economic policy adjustments in 2024 to consolidate a recovery.

“The target is in line with the annual requirements of the 14th five-year plan and matches the potential for economic growth, making it a positive and achievable target,” Zheng, chair of the National Development and Reform Commission, said. 

Premier Li Qiang on Tuesday announced the growth goal of 5% in his maiden work report to the National People’s Congress and promised to transform the country’s development model to offset the drag from a prolonged property crisis, high local government debts and weak consumer demand.

But analysts say much more stimulus may be needed to hit this year’s target and Li’s vision contains an inherent contradiction: his aim to “transform” the economic model may be incompatible with keeping growth rates steady.

“The drag from the unavoidable structural decline in China’s property sector has only just begun,” Mark Williams, chief Asia economist at Capital Economics, said in a note to clients, while warning that weak demand in the construction sector “would shave another percentage point off China’s average economic growth rate over the rest of this decade”.

China’s disappointing post-Covid-19 recovery has cast doubts about the foundations of its investment-heavy economic model, raising the stakes for government action at the weeklong parliament meeting of senior policymakers.

China’s manufacturing activity in February shrank for a fifth straight month, an official survey showed, though the services sector showed modest signs of improvement.

“Comprehensive analysis shows that the economy can be expected to have a good first quarter,” Zheng said, referring to February manufacturing and services sector data. He said that China’s exports for January-February increased by 10%, but did not state whether that was in yuan or US dollar terms.

Economists recently polled by Reuters expected outbound shipments in the first two months grew just 1.9% year on year, slowing from December. The trade data will be released on Thursday.

Severe situation

China’s foreign trade faces a severe situation in 2024, commerce minister Wang Wentao told the briefing.

Pan Gongsheng, governor of the People’s Bank of China, said the bank would keep the yuan basically stable and that it had “rich monetary policy tools at its disposal”.

Pan added there was still room for cutting banks’ reserve ratio requirement, after a 50-basis points cut in January, which was the biggest in two years. His comments spurred investors’ expectations for further cuts and pushed Chinese bond yields lower across the curve, Zou Wang, an investment director at Shanghai Anfang Private Fund Management, said.

China started 2024 with a stock market rout and deflation at levels unseen since the global financial crisis of 2008-09. The property crisis and local government debt woes have persisted, increasing pressure on leaders to come up with new policies. 

Wu Qing, head of the country’s securities watchdog, said it would attract long-term investment and address deep-rooted issues in the world’s second-biggest stock market to revive investor confidence.

US commerce secretary Gina Raimondo said in August that American companies had complained to her that China had become “uninvestable”, pointing to fines, raids and other actions that made it risky to do business there.

Speaking about local government debt, finance minister Lan Foan said risks were “generally under control” and that a basket of measures would be adopted to further deal with them.

China’s local government debt hit 76% of GDP in 2022, the latest data available, up from 62% in 2019 and dwarfing central government debt at 21%.

Reuters reported in January that China had told the most heavily indebted local governments to delay or halt some state-funded infrastructure projects to contain debt risks, though that would weigh further on economic activity.

Reuters