Chinese National People’s Congress: China sets ambitious economic target for 2024

Chinese National People’s Congress: China sets ambitious economic target for 2024

  • By Peter Hoskins
  • Business reporter

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Image caption,

Premier Li Qiang spoke at the opening of the annual Chinese National People’s Congress (NPC) on Tuesday

China has set an ambitious growth target of around 5% this year, outlining a series of measures aimed at boosting its stalled economy.

Premier Li Qiang made the announcement at the opening of the annual Chinese National People’s Congress (NPC) on Tuesday.

Mr Li acknowledged that China’s economic performance faced “headwinds”, adding that many were “still unresolved”.

It comes as China struggles to revive its once-booming economy.

“Risks and potential hazards in real estate, local government debt and small and medium-sized financial institutions were acute in some areas,” he said. “Under these circumstances, we faced significantly more dilemmas in making policy decisions and doing our work.”

A number of other measures have also been announced to help the country’s slow recovery from the pandemic, including the development of new initiatives to tackle problems in the country’s crisis-hit property sector. Beijing also aims to add 12 million jobs in urban areas.

Regulation of financial markets will also be strengthened, Premier Li said, while research will be boosted in new technologies, including artificial intelligence (AI) and life sciences.

Along with measures to stimulate the economy, defense spending will be increased by 7.2% this year.

Beijing’s defense budget is being watched closely by its neighbors and the US amid concerns about its intentions as tensions remain high over Taiwan.

For decades, China’s economy has grown at a stellar rate, with official figures showing its gross domestic product (GDP) growing by an average of nearly 10% a year.

Along the way, it overtook Japan to become the world’s second-largest economy, with Beijing claiming to have lifted hundreds of millions of people out of poverty.

Beijing says the economy grew 5.2 percent last year, which even at this level is low for China. However, some critics say the real figure may be less than a third of that.

“I think the next five or 10 years will be difficult,” Andrew Collier, managing director at Chinese research firm Orient Capital Research, told the BBC.

“Many economists think the numbers are completely made up. The idea of ​​5.2% or 5.5% growth is probably wrong. It’s more like 1% or 2%,” he added.

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Youth unemployment is one of the country’s biggest challenges

Whichever figures are accurate, it is clear that this vast country and its leaders face a daunting set of economic challenges.

That list includes a property market in crisis, a volatile stock market, high youth unemployment and the threat of deflation as consumer prices continue to fall.

These immediate problems are compounded by longer-term issues from trade and geopolitical tensions to China’s declining birthrate and aging population.

Economic challenges

One of the most serious of these challenges is related to the housing market, which according to the International Monetary Fund (IMF) represents about 20% of the economy.

This is a major concern “not only for developers, but also for regional banks that are heavily exposed to it,” said Dan Wang, chief economist at Hang Seng Bank (China).

And while much of the rest of the world has struggled with rising prices as a result of the pandemic, China has been one of the few major economies to avoid high inflation.

However, now I have to deal with the opposite problem – constantly falling prices or deflation.

Consumer prices in China fell in January at the fastest pace in nearly 15 years, marking the fourth straight month of decline.

It was the steepest drop since September 2009, when the global economy was still reeling from the effects of the global financial crisis.

Deflation is bad for economies because it can mean that people continue to put off buying large goods, such as washing machines or cars, in the expectation that they will be cheaper in the future.

It also affects people and businesses with debt. Prices and incomes may fall, but debts will not. For a company with declining revenues or a household with declining income, debt payments become a greater burden.

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Deflation can mean that people delay buying more expensive goods

All of this means that China lacks something vital to a strong economy: confidence. And authorities are scrambling to reassure investors and consumers.

“The messages from policymakers continue to be about restoring confidence and domestic demand,” Catherine Jung of Fidelity International told the BBC.

So far this has meant a series of relatively small measures aimed at different parts of the economy.

This year alone, borrowing costs were reduced and direct support was offered to developers along with other actions to tackle the housing crisis.

Earlier this month, in a shock move, the head of China’s stock market regulator was replaced, seen as a signal that the government is ready to take strong action to end the rout of its $8 trillion stock market .

Officials also took measures to restrict traders who bet against shares of Chinese companies and imposed new rules on selling shares at the start and end of the trading day.

An aging China at odds with the West

Beyond these immediate problems, China also faces a number of larger challenges, including slowing productivity growth and an aging population.

“Demographic dynamics are quite unfavorable, with the population aging rapidly due to the one-child policy,” said Chien Wang, chief economist for the Asia-Pacific region at investment firm Vanguard.

“Unlike Japan, which got rich before it got old, China got old before it got rich,” she added.

There is also the seemingly intractable geopolitical issue of Taiwan.

Beijing sees a self-governing Taiwan as a breakaway province that will eventually be part of China, and has not ruled out using force to achieve this. But Taiwan sees itself as distinct from mainland China.

Taiwan is a key point in the battle between China and the US for supremacy in Asia.

At the very least, this greatly complicates China’s relationship with the US and many other major Western economies.

There’s also the ongoing trade dispute with the U.S., which began in 2018 under then-President Donald Trump and has shown no signs of abating under the Biden administration.

A potential second term for Mr Trump could see tensions rise between Washington and Beijing.

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A potential second term for Mr Trump could see tensions rise between Washington and Beijing

Mr Trump, in characteristically hawkish comments about China, said he would impose more tariffs on its goods if he wins the US presidential election in November.

In an interview with Fox News, he said the tariffs could exceed 60%: “We have to do it,” he said.

While this could generate a lot of headlines, Ms Yeung suggests financial markets can take it in stride.

“Most of this negative news is now incorporated to share ratings,” she said.

It remains to be seen whether Mr Xi’s long-term plans for China will turn his country’s fortunes around.

What is clear, however, is that its more than 1.4 billion people are unlikely to enjoy a return to double-digit annual growth and the prosperity that comes with it any time soon.

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