Beijing is expected to resist market pressure for a much stronger stimulus to spur China’s economic recovery at its flagship annual political event this week, with President Xi Jinping focused instead on the longer-term goal of turning the country into an advanced manufacturing superpower, analysts have said.
Thousands of delegates from all over China will descend on Beijing for the opening session of the National People’s Congress, the rubber-stamp parliament, on Tuesday where Xi’s number two official, Premier Li Qiang, is expected to deliver a “work report” outlining the country’s targets for economic growth and military spending as well as policy priorities.
The NPC meeting will be scrutinised for signs of how the Communist party, which will celebrate the 75th anniversary of the People’s Republic of China this year, plans to deal with what analysts see as multiple geopolitical, demographic and economic hurdles facing the country.
These range from a real estate crisis, deflationary pressures and flagging investor confidence — reflected in record low foreign direct investment in 2023 and stock market falls this year — to growing European and US resistance to China’s exports, especially of electric vehicles.
“The government work report will aim to revive consumer and business confidence . . . through stimulus measures and measures to support the private sector,” said Neil Thomas, a fellow at the Asia Society Policy Institute’s Center for China Analysis.
He added, however, that any such proposals would be relatively restrained. “Xi doesn’t seem to be panicking and turning to massive stimulus or new approaches to try and revive growth. Xi sees China’s current economic wobbles as the short-term pain necessary to achieve the long-term gain of his vision of ‘high-quality development’,” Thomas said.
Analysts believe that based on provincial forecasts for gross domestic product growth this year, Li will set a target of 5 per cent for the national economy.
This would match last year’s target, which was the lowest in decades as a real estate crisis and falling prices for China’s exports undermined growth, but would be more difficult to achieve in 2024, analysts said.
Last year’s result, which came in at 5.2 per cent, was flattered by a low base of activity from the pandemic a year earlier.
Held every year after the lunar new year festival, the so-called Two Sessions of the NPC and its affiliate, the Chinese People’s Political Consultative Conference, the country’s top advisory body, last for one to two weeks.
The NPC has little autonomy but Beijing uses it to pass laws, announce personnel changes and endorse its policies. Xi used last year’s session, when he was inaugurated for an unprecedented third term as president, to accuse the US of “containing” and “suppressing” China.
This year, Xi is expected to be more restrained after he and US President Joe Biden met in San Francisco in November.
But analysts will be closely watching his meetings with different gatherings of NPC delegates, including the representatives of the provinces and the military, which has been under a cloud since he abruptly removed defence minister Li Shangfu last year as part of a sweeping purge.
Analysts said Xi might also use the opportunity to announce a new foreign minister to replace Wang Yi, China’s top diplomat, who was reappointed to the post last year after the incumbent Qin Gang was also suddenly removed from his job without explanation.
On the economy, the party’s leadership body, the politburo, gave a possible foretaste of Li Qiang’s work report last week when it announced after its monthly meeting that “this year’s work must persist in seeking progress while maintaining stability”.
It said “proactive fiscal policy must be appropriately intensified” and spoke of “prudent monetary policy” but gave few details.
Economists said this was a hint that Beijing was planning only a restrained stimulus to support growth. Many economists argue a much more sweeping stimulus targeting consumption is needed to lift the economy out of the doldrums.
“Domestic consumption needs to take over from investment to drive growth in 2024,” Moody’s Analytics said in a note.
To achieve 5 per cent growth, Beijing would probably be forced to exceed its usual fiscal deficit target of 3 per cent of gross domestic product for the second year running, analysts said.
While this would normally be directed into infrastructure and housing through local governments, some believe Beijing will put more money into advanced manufacturing.
“Instead of really looking at infrastructure or the property markets per se, I think the focus will definitely be on the industrial policy for China. So that’s where I expect the extra spending to go,” Heron Lim, economist with Moody’s Analytics, said. “A stimulus ‘bazooka’ as it has been traditionally designed, I don’t think will come.”
Logan Wright of Rhodium Group, who estimated that growth last year was actually just 1.5 per cent, told a CSIS webinar on Thursday that he expected it to rebound this year to 3.5 per cent as the property market stabilised and consumption recovered. But he predicted growing trade frictions as China invested in excess capacity.
“One of the key stories this year will be China’s exports to the rest of the world, particularly in electric vehicles, solar panels [and] sectors that have benefited from Chinese industrial policy,” he said. “The politics of external imbalances are going to come back.”
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