Can China achieve its 5% growth target in 2024?

The 5% economic growth target for China this year "is in line with the requirements of the 14th Five-Year Plan, and basically matches the potential economic growth. It is a positive goal that can be achieved with a leap of faith."

Since the cancellation of the premier's press conference following China's Two Sessions, Zheng Shanjie, chairman of China's National Development and Reform Commission (NDRC), represented the decision makers in expressing a vote of confidence during a press conference on the state of the economy this year. But as for whether this goal can be realised, and how to go about making this "leap", that remains unclear.

Even though the economic growth target is the same as last year, the 5.2% growth for 2023 was set against the poor economic performance from 2022. The basis for comparison this year is higher, yet the negative factors have not gotten less, making it even more challenging to achieve the same target this year.

According to estimates by Capital Economics, if China is to hit 5% growth this year, it would mean that quarter-on-quarter annualised growth must reach 5.3%, higher than last year's 4.2%.

The World Bank and International Monetary Fund, among other organisations, as well as analysts, generally peg China's economic growth for this year at lower than 5%; even Chinese Premier Li Qiang admitted when he announced the target for growth this year that "achieving this year's target will not be an easy task".

Setting a target higher than what external observers estimated is undoubtedly a sign of the higher-ups' confidence in the state of the economy, as well as a sign of their determination to uplift market expectations. But this also begs certain questions: if the shroud of deflation persists for long, would China go back to its old method of "large-scale stimulus"? And if GDP growth this year does not meet the target, does it mean that China's economy is already starting to decline?

The Chinese government's work report pointed out that to achieve this year's growth target, there is a need to "maintain policy focus, work harder, and mobilise the concerted efforts of all sides". Yet, the work report did not offer solutions to the current problems plaguing China's economy, such as the persistent deflation, the ailing property market, and the weak domestic demand, and has kept its fiscal budget deficit at 3%. The ultra-long special treasury bonds to be issued for several years starting from 2024 is one of the few bright spots.

In fact, on top of the 1 trillion RMB ultra-long special treasury bonds issued this year, most of the 1 trillion RMB treasury bonds issued in Q4 2023 are expected to be used this year. Taking into account as well the 350 billion RMB pledged supplementary lending (PSL) from early 2024, the 1.5 trillion RMB in special refinancing bonds issued in October 2023, the 4 trillion RMB fiscal deficit and the 3.9 trillion RMB local government special debt, the combined fiscal stimulus already exceeds 10 trillion RMB.

However, apart from the fact that the PSL will be used to fund investments in the "three major projects" - building affordable housing, renovating urban villages and constructing emergency public facilities - to stabilise the property market, and special refinancing bonds will be used to service local government debt, it is not yet known what most of the other funds will be used for.

Zheng said that proceeds from the 1 trillion RMB worth of bonds will be used to support technological innovation, urban-rural integrated development, coordinated regional development, food and energy security, and high-quality development. Consumption, which contributed 82.5% of overall GDP growth last year, was not included.

Although China's consumer price index rose amid the red-hot Spring Festival spending boom, ending four straight months of declines, economists are worried that this temporary boost will be difficult to sustain. They believe that China still needs to vigorously stimulate domestic demand to get out of the deflation dilemma.

Chinese economist David Li Daokui told Bloomberg Television in an interview that he has suggested to Chinese Premier Li Qiang that "China needs more aggressive policies to promote consumption". David Li also suggested that the government could issue 1 trillion RMB in consumption vouchers during the next major holiday season.

UBS chief China economist Wang Tao urged officials to ramp up policy efforts to stabilise the property market, including increased credit support for property developers, financial support to guarantee the delivery of housing projects, and support for local governments in direct purchasing of more housing inventory on the market. However, she predicted that the aforementioned policies may only be introduced if the property market further declines or if more risky events are exposed.

Instead of giving clear answers to the above questions that those outside China are concerned with, officials have chosen to shift the focus of this year's economic work to "new quality productive forces". First introduced by Chinese Communist Party General Secretary Xi Jinping last year, this concept is seen as China's preparation for transformation in response to growing China-US tensions, as well as the direction of the country's long-term economic development.

While the Chinese government has made accelerating the development of new quality productive forces a top priority this year, water from far away does not help in putting out a nearby fire - emerging industries such as electric vehicles, lithium batteries and renewable energy only account for less than 5% of China's GDP at the moment. It would be difficult for these industries to replace traditional industries such as real estate as new growth engines within the next three to five years, let alone create enough jobs for nearly 12 million fresh college graduates this year.

Although Chinese officials have reiterated that China's policy toolbox is still well-stocked and that there is still ample policy headroom, following last year's bombardment of promises, it has become increasingly difficult to stimulate domestic and foreign investors. People are more concerned with where the funds are going, rather than the amount of money; the market is more concerned with whether there is a clear path and a detailed implementation plan, rather than the grand design itself.

Due to a lack of details, most economists are maintaining their original forecasts for China's economic growth after the government work report was released. Even after the conclusion of the week-long Two Sessions, analysts remain unclear about how China's economy will develop this year. 　　

Whether the GDP growth target of "around 5%" for 2024 will boost confidence depends on whether the market sees it as a feasible target that will guide their way out, or a castle in the air with no way out. Unfortunately, as the policy observation window of the Two Sessions gets smaller, people are not getting more information and guidance, but more questions and concerns instead.

This article was first published in Lianhe Zaobao as "中国经济目标只需奋力一跳？".

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