Outgoing Chinese Premier Li Keqiang announced the lowest GDP growth target in the country for decades, highlighting the national and global challenges the world’s second-largest economy still faces despite its decision late last year to abandon draconian anti-Covid measures.
Li set a target of around 5% growth for 2023 at the National People’s Congress on Sunday, while acknowledging the “numerous difficulties” the economy faces. The only year in recent history when the government was less ambitious was in 2020, when it adopted a numerical target because the economy was almost paralyzed by the first epidemic of Covid.
“Insufficient demand is still a big problem,” Li said on Sunday. “Stabilising employment is difficult. And some local governments are facing great budgetary difficulties.
Perceived as marginalized by Chinese leader Xi Jinping in recent years, Li will officially step down during the congress in the biggest shake-up of the country’s economic direction in a decade.
Li is likely to leave with a generation of educated, reform-minded Western leaders who have influenced economic policy-making over the past 10 years. The new team, which is expected to be made up of close aides to Xi, faces the difficult task of reviving the economy.
China is in full a historic slowdown for the very important housing market. consumer spending is slow. Unemployment remains high among young people.
Business confidence plummeted following an unprecedented regulatory crackdown on the private sector and heightened uncertainty over China’s future policy. Relations between the United States and China are at their lowest point in decades, leading to escalating tensions in technologies and investments. Foreign investment in China has plummeted.
In a rarely heard message from senior officials, In his address to the nation, Li alluded to growing public dissatisfaction with the government, calling on the country’s policymakers to “face the problems and do their best to improve the government’s work.”
Mass demonstrations broke out late last year across the country, in a rare show of dissent against the ruling Communist Party sparked by anger over its zero-Covid policies. Last month, protests took place in the central city of Wuhan and the northeastern city of Dalian, as hundreds of elderly people confronted local authorities to oppose changes to their health insurance, who had drastically reduced their medical benefits.
Nomura analysts said the 5% growth target suggests “the government is conservative but pragmatic about the economic outlook in 2023, with weaker global demand weighing on exports, heightened geopolitical tensions and a still moderate recovery in the housing sector”.
The new State Council, China’s cabinet, is also “learning a lesson” from last year’s major growth target miss, they added.
In 2022, the Chinese economy increased by 3%the second-lowest growth in nearly half a century and behind only 2020. It is well below the official growth target of “about 5.5%”.
“Having declared an end to the pandemic, leaders are sticking to slower long-term GDP growth by gradually lowering the annual GDP target,” said Ken Cheung, chief Asian currency strategist at Mizuho. Bank.
“Moreover, China has downplayed the numerical GDP target and moved to balance the quality since the era of President Xi,” he said.
In Li’s final report on government work, he called for increase consumption and set a target of creating around 12 million jobs in towns and cities this year, up from last year’s target of at least 11 million.
Beijing will also allow local governments to issue up to 3.8 trillion yuan ($550 billion) in special bonds in 2023, which will help them build 5G networks, railways, airports and others. infrastructure projects, Li added.
But that’s less than last year’s 4.15 trillion yuan ($600 billion) quota.) and below market expectations.
The lower target suggests infrastructure growth will slow this year, said Iris Pang, chief economist for Greater China at ING Group.
The government’s budget deficit last year was too high, at 8% to 9% per GDP, which likely reduced its firepower to fund more infrastructure spending, she said.
Premier Li also said the government will only increase fiscal spending by 5.6 percent this year, which is lower than the 6.1 percent growth in fiscal spending in 2022.
According to the latest budget report from the Ministry of Finance, local government revenue is expected to increase by only 0.4% this year, an indication of Beijing’s cautious forecast on land sales.
Local governments have relied heavily on land sales in the past as a source of revenue, but those revenues have contracted by 23% in 2022, dealing a blow to finances already strained by huge Covid spending.
“After three years of pandemic [measures]it may be more than desirable for governments, especially local governments, to restore fiscal resilience,” Citi analysts said.
“Contemplating…fiscal repair and mindful of inflation risks, the government work report gives no indication [of] massive fiscal or monetary stimulus,” they said.
Earlier this month, Liu Guoqiang, vice governor of the People’s Bank of China, said the economy needed more policy support, but the central bank will not resort to stimulus measures.” flood type” as it seeks to strike a balance between growth and ensuring price stability.