China is aiming for economic growth of about 5 percent by 2023 – one of the lowest targets in decades.
Outgoing Chinese Premier Li Keqiang revealed the target on Sunday at the opening of the National People’s Congress (NPC), China’s parliament that meets in Beijing until March 13.
The conservative goal comes as Beijing seeks to revive the world’s second-largest economy after scrapping its “zero-COVID” policy of lockdowns, mass testing and quarantine late last year.
Why does China have modest expectations for the economy in 2023?
China’s economy officially grew by 3 percent in 2022 — far short of the target of about 5.5 percent — as severe pandemic restrictions, a slump in the real estate market, a government crackdown on private companies and the trade war between the United States and China hurt growth.
Excluding 2020, when COVID-19 rocked the global economy, last year’s economic growth was the lowest since 1976, the last year of Mao Zedong’s cultural revolution.
While the Chinese economy appears to be recovering strongly from the pandemic — manufacturing activity in February, for example, beat expectations and grew at its fastest pace in more than a decade — Chinese officials have warned of risks ahead.
While acknowledging China’s “huge potential and momentum for further growth,” Li pointed to the emergence of “uncertainties in the external environment,” including high inflation, and “external efforts to suppress and contain China” — a thinly disguised reference to the heated geopolitical competition with the US.
China’s economy also faces serious long-term challenges domestically, including a massive housing bubble and a shrinking workforce due to a trough in the birth rate.
Many economists believe that China’s boom era – marked by decades of double-digit annual growth – is now a thing of the past.
In a report released in March last year, the Australian think tank Lowy Institute predicted that the Chinese economy will grow at an average annual rate of 2-3 percent until 2050. in the coming decades.
Speaking at the opening of the NPC, in which the ruling Communist Party will elect its leaders for the next five years, Li indicated that Beijing would not rely heavily on government coffers to boost growth, and emphasized the need to revitalize private consumption. reinvigorating and spending on “big-ticket items”.
Li said the government would aim for a budget deficit of 3 percent relative to gross domestic product (GDP) in 2023, a slight increase from 2.8 percent last year.
Li also placed a strong emphasis on job creation, with a target of 12 million new urban jobs by 2023, against a target of 11 million by 2022.
“In my opinion, they are managing expectations,” Alicia García-Herrero, chief economist for Asia Pacific at Natixis in Hong Kong, told Al Jazeera.
“If you look at the details, they’re announcing fewer special government bond issuances because they’ve done a lot of frontloading and they don’t want to run a budget deficit.”
Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, said the modest target may also be a holdover from the more pessimistic economic outlook prevailing at the Central Economic Working Conference, a major annual economic conference, in December.
“The global outlook was more challenging then, with the US and Europe on the brink of recession,” Zhang told Al Jazeera.
“China’s economic recovery was also unclear. Given the government’s complete reshuffle, it will be important to watch in the coming months how the new leaders will boost private sector confidence. I think that is more important than fiscal and monetary policy.”
Will China meet its growth target?
Most economists believe that China will be able to achieve, and perhaps exceed, 5 percent growth in 2023, especially as the economy came off a low last year.
“It is not overly optimistic and does not spend too much to stimulate growth,” the financial group ING said in a note. “It focuses more on longer-term growth challenges. In our view, it would not be very challenging to meet these targets.”
Beijing’s target should be seen as the “floor for growth that the government is willing to tolerate,” said Pinpoint Asset Management’s Zhang.
“Indeed, given last year’s very low base of economic activity, growth is unlikely to fall below 5 percent,” he said. “There is no fiscal stimulus from the NPC, which is not surprising given that the economic recovery is already on track.”
García-Herrero of Natixis said China’s economy is “likely” to grow more than 5 percent this year.
“I would say they know the economy is not going to grow at eight percent or something like that, but definitely at five percent,” she said.
