China sets ‘ambitious’ 5% growth target and flags risks to economy

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China will target economic growth of about 5 per cent this year, a rate analysts have described as “ambitious”, as the world’s second-largest economy battles challenges ranging from a property slowdown to weak investor confidence.

Premier Li Qiang, President Xi Jinping’s number two, announced a budget deficit target in line with last year’s figure and new special central government bonds but disappointed investors who had been hoping for a bigger spending boost for the economy.

“The foundation for the continuous recovery and improvement of our country’s economy is still not solid, with insufficient demand, overcapacity in some industries, weak societal expectations and many lingering risks,” Li said as he presented his “work report” to nearly 3,000 delegates crowded into the Great Hall of the People in Beijing.

Investors are watching this year’s meetings — known as the “Two Sessions” — of the National People’s Congress, the country’s rubber-stamp parliament, and the Chinese People’s Political Consultative Conference, the top advisory body, for clues on how Xi plans to tackle the slowing economy.

The report is the gathering’s keynote speech, laying out the party’s most important annual economic goals and setting the tone for policymakers for the rest of the year. Last year’s report also set the growth target at about 5 per cent, the lowest in years.

Xi, China’s most powerful leader since Mao Zedong, occupied a seat at the centre of the hall’s vast podium and silently watched Li’s hour-long address, which touched on plans to tackle high local government debt, support the ailing property sector and improve maternity policies to boost the lagging birth rate.

Li set a budget deficit target of 3 per cent of gross domestic product and announced Rmb1tn ($138.9bn) in ultra-long-term special central government bonds, which are used by Beijing to provide extra support for the economy.

He forecast that China would create more than 12mn urban jobs this year, targeting an unemployment rate of 5.5 per cent and inflation of 3 per cent. The country faces persistent deflation, with consumer prices falling at the fastest annual rate in 15 years in January.

Beijing’s military budget will increase 7.2 per cent, matching last year’s rate of rise. China has strengthened its military activities around Taiwan in recent years, and Li said Beijing would “resolutely oppose separatist activities aimed at Taiwan independence” and “unswervingly advance the great cause of the motherland’s reunification”.

The targets were widely in line with market expectations. But analysts cautioned that the 2024 target would be harder to achieve than in 2023, when growth, which came in at 5.2 per cent, was flattered by a low base effect during the pandemic.

“It will be a more challenging path to repeating 5 per cent growth in 2024,” said analysts at ING. They said consumption drove last year’s recovery but weak consumer confidence and a negative wealth effect would make this difficult to repeat in 2024.

In Hong Kong, the Hang Seng China Enterprises index of large and liquid Chinese stocks fell 2.6 per cent on Tuesday. The CSI 300 index of Shanghai- and Shenzhen-listed companies closed the day up 0.7 per cent.

Li said the Rmb1tn special treasury bonds would be used to implement “major national strategies and building up security capacity in key areas”. Beijing said it would continue issuing the special bonds in coming years, which are not included in the government deficit.

Tian Xuan, associate dean at Tsinghua University’s PBC School of Finance and an NPC delegate, called the bonds “a very important signal of central fiscal efforts to support our high-quality economic development”.

Hui Shan, chief China economist at Goldman Sachs, noted that the last time China used special treasury bonds was in 2020, during the pandemic. “So to me, that’s a signal that the central government understands the challenge.”

She added that Beijing could always increase the headline budget deficit, which is only a small part of the picture, estimating that an “augmented fiscal deficit” covering a broader range of government spending was closer to 11.9 per cent last year.

The premier also promised a slightly higher quota for special local government bonds of Rmb3.9tn, compared with Rmb3.8tn last year.

Li laid out plans to increase government funding for science and technology research by 10 per cent from last year “to move faster to boost self-reliance” in the face of US efforts to stymie China’s semiconductor industry.

NPC members praised the emphasis on investing in high technology.

“Especially in artificial intelligence . . . we need to pay attention and invest in it, as it is closely related to new areas of industrialisation,” Hendrick Sin, co-founder of Hong Kong-listed mobile game publisher CMGE and an NPC delegate, told reporters as he left the venue.

Xi and his advisers have largely eschewed handouts to households, other than a mooted scheme to help consumers trade in home appliances and cars.

Li attributed a litany of achievements in 2023 to Xi, and called for officials to “rally more closely” around the Chinese Communist party “with comrade Xi Jinping at its core”.

Additional reporting by Wenjie Ding and Nian Liu in Beijing, Edward White in Shanghai and Cheng Leng in Hong Kong