Pedestrian walk across a traffic intersection near office buildings in the Central Business District, in Beijing, on Feb. 8.Andy Wong/The Associated Press
The head of China’s state planner said on Wednesday that the government’s 5 per cent economic growth target this year, which many analysts say is ambitious, is achievable and that he expects the world’s second-largest economy to have a good first quarter.
Speaking at a rare joint 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 this year to consolidate a recovery.
“The target is in line with the annual requirements of the 14th Five-Year Plan and basically matches the potential economic growth, and it is a positive goal that can be achieved with a leap of faith,” said Zheng, chairman of the National Development and Reform Commission (NDRC).
Premier Li Qiang on Tuesday announced the growth goal of around 5 per cent 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 recovery has cast doubts about the foundations of its investment-heavy economic model, raising the stakes for government action at the week-long parliament meeting of senior policy-makers.
China’s manufacturing activity in February shrank for a fifth straight month, an official survey showed on Friday, 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 also said that China’s exports for the January-February period increased by 10 per cent, but did not state whether that was in yuan or U.S. dollar terms.
Economists recently polled by Reuters expected outbound shipments in the first two months grew just 1.9 per cent year-on-year, slowing from December. The trade data will be released on Thursday.
China’s foreign trade faces a severe situation this year, commerce minister Wang Wentao told the briefing.
Pan Gongsheng, governor of the People’s Bank of China (PBOC), 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 (RRR), following 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, said Zou Wang, an investment director at Shanghai Anfang Private Fund Management.
China started the year 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.
Last week, China’s cabinet approved a plan aimed at promoting large-scale equipment upgrades and the sale of consumer goods.
State planner head Zheng said the proposed replacement of consumer goods would include cars and home appliances, and that equipment upgrades alone could generate market demand of over 5 trillion yuan ($694.54-billion) annually. He did not give further details.
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.
U.S. Commerce Secretary Gina Raimondo said in August that American companies had complained to her that China has 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 that 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 per cent of gross domestic product in 2022, the latest data available, up from 62 per cent in 2019 and dwarfing central government debt at 21 per cent.
Reuters reported in January that China has 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.