Aurelia Butler

China will aim for an economic expansion of “around 5 per cent” for 2023, its lowest target for more than three decades, as President Xi Jinping seeks to restore pre-pandemic levels of growth and prepares to further centralise power in his own hands.Announcing the target, which was below last year’s goal of 5.5 per cent, China’s outgoing premier Li Keqiang told the annual National People’s Congress — its rubber-stamp parliament — that the aim this year was to “prioritise economic stability”.If achieved, the target would represent a recovery from growth of just 3 per cent in 2022 after numerous Chinese cities suffered extended lockdowns in an effort to prevent the spread of the Omicron coronavirus variant.China’s official economic growth targets have been trending lower over the past decade as policymakers have sought to rein in the country’s growing debt burden and stimulate more domestic consumption.Analysts said this year’s conservative economic growth target would be easier for Xi’s new economic team to meet, after falling far short of its goal in 2022.Goldman Sachs said achieving this year’s target was “not challenging” given the low base from last year. It predicted gross domestic product would grow 5.5 per cent this year driven by the rebound in household consumption after the reversal of China’s strict zero-Covid policy.“This growth target heralds the return of headline GDP growth as the organising principle for economic and financial policies, but also signals that the era of rip-roaring growth is over,” said Eswar Prasad, senior fellow at the Brookings Institution.China’s most powerful leader since Mao Zedong, Xi is expected to use this year’s parliamentary session, which began on Sunday, to undertake sweeping changes to his administration.Xi is due to install loyalists to senior government jobs and overhaul portfolios such as finance and technology, centralising power further and reversing a decades-long trend towards separating the party from the government.Li is expected to be replaced as premier by Li Qiang, a close Xi associate who presided over the lockdown of Shanghai last year as the city’s Communist party chief. He previously worked with Xi in Zhejiang province in the 2000s.Li Qiang will give a press conference on the final day of the congress on March 13, laying out the agenda for his new government. Reading out the government’s new work report before about 3,000 members of the congress on Sunday, Li Keqiang set a target for China’s budget deficit this year at 3 per cent of gross domestic product while pledging to create 12mn new urban jobs and keep the unemployment rate at about 5.5 per cent.China needed to “expand market access” for foreign investors, prop up consumption and control risk in the real estate sector, Li said, in one of his last appearances as China’s second-ranked official. He provided few details on how Beijing should implement these policies.“Hit by Covid-19 and other challenges, many enterprises and small businesses experienced acute distress,” said Li. “Maintaining employment stability is challenging and the budgetary imbalances of some local governments are substantial.”China’s economy has shown signs of recovery from the downturn, with sentiment in the manufacturing sector hitting a decade high in February. But Li warned in his speech that “many difficulties and challenges still confront us”.These included external problems, such as inflation in other countries, slowing global trade and economic growth, as well as “escalating” attempts “to suppress and contain China’s development”.On China’s stricken property sector, where many companies have defaulted on their debt, Li pledged to help “high-quality, leading real estate enterprises” while continuing to “prevent unregulated expansion”.“I think on the whole the report is geared towards reassuring foreign investors that China is still a good place to do business and so forth,” said Willy Lam, an expert in Chinese politics at the Jamestown Foundation think-tank in Washington.

The Chinese president completed a clean sweep of the Communist party’s top decision-making body, the seven-member Politburo standing committee, in October, edging out rival factions and completing his domination of the country’s politics.Aside from Li Qiang, Xi is expected to appoint new heads to the government’s main financial agencies and regulators, including the People’s Bank of China.Analysts have expressed concerns that the new officials, many of whom have spent much of their careers as local government politicians, might be less inclined to tackle financial speculation than the existing team, which is made up mostly of technocrats known for their hawkishness.Reporting by Joe Leahy, Ryan McMorrow, Sun Yu and Nian Liu in Beijing, Cheng Leng in Hong Kong and Kathrin Hille in Taipei More

Is the US jobs market still booming? A barnstorming US jobs report in January upended markets and expectations of just how far the Federal Reserve would have to go to cool the economy. February’s figures, due out on Friday, will show whether January’s hiring spree was an aberration or part of a broader pattern that could worry officials. The Department of Labor is expected to report that the US added 215,000 jobs in February, according to economists polled by Bloomberg, a big step down from the 517,000 added in January. A surprise is possible, however — the January figure was nearly triple forecasts. The unemployment rate is expected to remain at 3.4 per cent, the lowest level in more than 50 years. Average hourly earnings are also forecast to have stayed even, at 0.3 per cent. The data will be an important ingredient of the Fed’s meeting later in March to determine its next policymaking step. The central bank last month slowed the pace of its monetary tightening, lifting interest rates by 0.25 percentage points after a series of 0.75 and 0.5 percentage point raises last year. While the Fed is widely expected to raise rates by 0.25 percentage points again in March, the jobs data will affect how many more rises will come after March. A strong jobs market typically suggests higher wages, which are one source of inflation. The jobs data, however, is just one piece of the growing evidence that inflation has re-accelerated in the US. Both the consumer price index and the personal consumption expenditures price index rose by more than expected in January. Kate DuguidMight Kuroda pull a surprise at his last BoJ meeting?Markets are adjusting to the idea of the academic Kazuo Ueda taking over as the new governor of the Bank of Japan next month. But speculation is mounting that the surprise-loving incumbent, Haruhiko Kuroda, could deliver a parting shot at his final monetary policy meeting this week.The chief focus is on the potential for an adjustment to the BoJ’s yield curve control policy (YCC) — the mechanism by which the central bank has attempted to fix the level of 10-year Japanese government bonds, but, in so doing, has drained much of the liquidity from that part of the market. Some investors expect significant adjustments to YCC early in Ueda’s term, while others see the prospect of it being abandoned altogether. In the short term, however, the BoJ could perform a small adjustment of the policy band.In December, very much to the surprise of markets and out of keeping with the resolutely dovish tone of his previous comments, Kuroda tweaked the YCC to widen the scope for 10-year rates to fluctuate around the targeted level. Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG Securities, puts the chances of a similar move by the BOJ this week at only 20 per cent: not especially likely given that the risks of extreme yen weakness seem to have receded.“The intent of cleaning up a room before handing it over to a new inhabitant might inadvertently create new problems for the next person,” said Yamaguchi. “For example, the market has not fully factored in a March YCC revision, and a sudden revision runs the risk of causing adjustment in the stock market and yen appreciation.” Leo LewisHow much did the UK economy expand in January?The UK economy is expected to have marginally expanded in January, partially recovering from the contraction registered in December, but continuing the underlying weak trend seen throughout last year.Economists polled by Reuters expect the data released on Friday to show that gross domestic product grew 0.1 per cent in January, after shrinking 0.5 per cent the previous month.Ellie Henderson, an economist at Investec, does not expect “the economic picture to have brightened materially in January”. She anticipates that “the services industry failed to fully recover the losses from December, with industrial action in both transport and education likely to have weighed on the sector”.Despite a 10 per cent rise in general practitioner appointments already reported, she expects services output to have expanded only 0.3 per cent in the month.Analysts predict a 0.2 per cent fall in manufacturing production. In the three months to January, the economy is forecast to have stagnated, reflecting the impact of high inflation and rising borrowing costs on household finances and business activity. UK output has yet to regain the level it reached in the fourth quarter of 2019, before the pandemic, making it an outlier among G7 countries. The UK economic outlook had brightened in recent weeks due to the recent fall in wholesale energy prices, but 2023 remained “a challenging economic environment”, said Henderson. She expects the economy to contract 0.5 per cent this year. Valentina Romei More

Industrial policy is back in vogue in America, on a grand scale. Applications have opened to companies for a share of the $39bn funding earmarked by last year’s $280bn US Chips and Science Act to build an advanced semiconductor manufacturing capability. Along with the $370bn subsidies for clean energy in the Inflation Reduction Act, the chips project is emblematic of the Biden administration’s approach. Putting the US back among the leaders in top-end chipmaking is likened to a new moonshot. But the White House is freighting it with additional policy aims that endanger the project’s chances of success.One rule of industrial policy is to use it sparingly. Governments in advanced economies have no business intervening widely to support “winners”. Achieving national security goals is one area where a state-led strategy and funding can sometimes be justified — and the White House has a defensible case that reducing US reliance on foreign-made microchips is vital.The US share of global microchip manufacturing capacity has fallen from 37 per cent in 1990 to 12 per cent today. More importantly Taiwan, mostly via Taiwan Semiconductor Manufacturing Company or TSMC, produces more than 90 per cent of the world’s leading-edge chips, crucial for defence applications and technologies such as cloud computing, fast communications networks and artificial intelligence. Chinese action against Taiwan — no longer such a remote possibility — could cripple chunks of US industry.A second rule is to set precise goals and stick to them. The chips plan aims to expand manufacturing of advanced logic chips the US doesn’t produce, creating at least two “clusters” including a supplier ecosystem and research and development facilities. But the administration has tacked on a list of conditions for companies receiving funding. They cannot expand advanced chip capacity in China for 10 years, or use funds for share buybacks or dividends. They must share returns above agreed levels with the government, pay union wages for construction and ensure access to affordable childcare.Though some of these aims are understandable and positive, taken together they suggest the White House is trying to stretch one initiative to cover too many goals. The chips act is becoming a Christmas tree in which all interest groups get a bauble. Officials say requiring day care makes sense to make jobs attractive when skills are in short supply, but companies will realise this anyway. And commerce secretary Gina Raimondo has signalled that after Congress failed to back plans to put billions of dollars into new childcare last year, the administration sees spending programmes that did pass as a way to achieve the goals within certain sectors.Since chipmaking moved offshore in part because US production is so costly, the White House should be trying to ease cost and regulatory burdens, not add to them. US customers may, as TSMC officials have suggested, be ready to pay more for chips made in America, but there are limits. The US is also in a global fight to attract advanced chipmakers: in coming years the EU, Japan, South Korea, India and Taiwan, and China, are offering hundreds of billions of dollars in subsidies and tax breaks.Indeed, the White House needs to be clearer over whether it is aiming for self-sufficiency in chips, or to boost resilience through “friendshoring” of supply chains. The latter is preferable, even if US customers might prefer all-US chips, and some of the friends need to be outside striking distance of China. A “Chip 4” alliance the US has touted with South Korea, Japan and Taiwan has made little headway. But without careful co-ordination with US allies, a subsidy war could leave no one the winner. More