What is the significance of China's announcement of its lowest growth objective in decades?

 

In the face of several domestic and global obstacles, Beijing is aiming for a modest growth rate of 5% in 2023.

China's economic growth forecast for 2023 is around 5%, one of the lowest in decades.

Departing Chinese Premier Li Keqiang announced the goal on Sunday at the start of the National People's Congress (NPC), China's rubber-stamp parliament, which is meeting in Beijing until March 13.

The cautious objective comes as China strives to revitalise the world's second-largest economy following the end of its "zero-COVID" policy of lockdowns, mass testing, and quarantine late last year.

Why is China's outlook for the economy in 2023 so pessimistic?

China's GDP officially expanded at a 3 percent annual rate in 2022, falling well short of the aim of 5.5 percent, as stringent influenza restrictions, a property market downturn, government crackdowns on private sector, and the US-China trade war slowed development.

With the exception of 2020, when COVID-19 threw the world economy into disarray, last year's economic growth rate was the slowest since 1976, the final year of Mao Zedong's cultural revolution.

Although China's economy looks to be recovering quickly from the epidemic — industrial production, for example, outperformed forecasts in February, rising at the strongest rate in more than a decade – Chinese officials have cautioned of threats ahead.

Li praised China's "huge potential and momentum for continued progress," but he also noted the increase of "uncertainties in the external environment," such as rising inflation, and "foreign measures to restrict and control China" — a veiled allusion to the nation's tense geopolitical rivalry with the US.

China's economy also confronts significant long-term domestic issues, such as a massive property bubble and a declining working population as a result of a historically low birth rate.

Many analysts think that China's high-growth period, which was characterised by years of double-digit growth, is now over.

In a research published in March of last year, the Australian think tank Lowy Institute forecast that through 2050, the Chinese economy will expand by an average of 2-4 percent annually, throwing doubt on long-held expectations that China will surpass the US as the world's largest economy.

During the opening of the NPC, during which the ruling Communist Party will choose its leaders for the next five years, Li indicated that Beijing would not lean heavily on government coffers to stimulate growth, stressing the need to revive private consumption and stabilize spending on "big-ticket items".

Li stated that the government intends to target a budget deficit of 3% of GDP in 2023, up from 2.8 percent last year.

Li also focused considerable emphasis on job development, putting out a goal of 12 million new urban employment in 2023, up from a target of 11 million jobs in 2022.

"In my opinion, they are managing expectations," said Alicia Garca-Herrero, chief economist for Asia Pacific at Natixis in Hong Kong.

"If you look at the facts, they're announcing a reduction in the issue of special government bonds because they did a lot of front-loading and don't want to run a budget deficit."

The modest aim, according to Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, may possibly be a carryover from the more negative economic view that prevailed during the Central Economic Working Conference, a significant annual economic meeting, in December.

"The global picture was more difficult back then, with the United States and Europe on the verge of recessions," Zhang told Al Jazeera.

"China's economic recovery was similarly hazy. With the government's entire reshuffle, a major topic to watch in the coming months is how the new leaders can increase private sector confidence. In my opinion, this is more essential than fiscal and monetary measures."

Will China meet its growth goal?

Most analysts predict China will be able to achieve, and maybe exceed, 5% growth in 2023, especially given the economy's poor starting point last year.

"It is not unduly enthusiastic and does not spend excessively to stimulate growth," stated the ING banking firm in a note. "It focuses on longer-term growth concerns. In our opinion, meeting these objectives would be rather easy."

Beijing's aim should be considered as the "bottom of growth the government is willing to allow," said Zhang of Pinpoint Asset Management.

It is improbable to see growth fall below 5 percent, he added, given the relatively low base of economic activity last year. "The NPC has not announced any budgetary stimulus, which is not unexpected given that the recovery of the economy is already underway."

China's economy would "probably" grow by more than 5% this year, according to Natixis' Garca-Herrero.

They know the economy won't increase by 8% or something like, but most likely by roughly 5%, she asserted.

SOURCE: AL JAZEERA

https://www.aljazeera.com/economy/2023/3/6/why-did-china-set-its-lowest-economic-growth-target-in-decades