China Sets Ambitious 5% Growth Target, Economist Warns of Challenges Ahead

China has set an annual growth target of "around 5%" for this year, as revealed in the government's annual work report. This target comes with a deficit-to-gross domestic product ratio of 3% for 2024. However, meeting this ambitious goal "will not be easy" according to the Chinese government itself.

Economic Outlook and GDP Projections

Wang Dan, chief economist at Hang Seng Bank (China), expressed skepticism about achieving the 5% GDP target. She pointed out that the COVID-19 rebound last year played a significant role in achieving a 5.2% growth. However, with no similar stimulus this year, reaching the 5% target will be challenging, especially with the fiscal deficit set at only 3%.

Fiscal Policy and Infrastructure Projects

The government's work report has hinted at a more cautious approach, favoring a contractionary fiscal policy rather than an expansionary one. According to Wang Dan, launching a large-scale infrastructure project akin to the size and impact of the Three Gorges Dam might be necessary to drive domestic demand.

Government Bonds and Economic Stimulus

China's plan to issue 1 trillion yuan ($138.9 billion) in "ultra-long" special treasury bonds in 2024 has been viewed as a positive surprise. These bonds, issued to fund major projects aligned with national strategies, will not contribute to the fiscal deficit. Additionally, Premier Li Qiang announced the issuance of 3.9 trillion yuan of special-purpose bonds for local governments, signaling a firm commitment to infrastructure development.

Impact of Real Estate Troubles

China's real estate woes, stemming from a crackdown on developers' debt reliance, have led to a contraction in the housing market. This has shifted the focus to manufacturing and infrastructure development as key drivers of economic growth, as acknowledged by Wang Dan from Hang Seng Bank (China).

Focus on Industrial Development and Innovation

The government work report underlines a commitment to modernize the industrial system and develop new quality productive forces at a faster pace. Premier Li Qiang emphasized the importance of innovation in science and technology, new industrialization, and the development of new growth drivers.

New Industries and Growth Drivers

The work report specifically mentions several industries, including artificial intelligence, new-energy vehicles, hydrogen power, biomanufacturing, commercial spaceflight, new materials, and innovative drugs. This emphasis on achieving industrial prowess and fostering advanced manufacturing capacity is expected to have implications for export competition.