China - 2024 growth target more ambitious than support plans

China Macro: 2024 growth target set at ‘around 5%’, as expected

As usual, China’s growth target for the year was announced at the start of the annual National People’s Congress, traditionally held in early March. In his maiden annual government work report to China’s parliament on Tuesday, Prime Minister Li Qiang announced a 2024 growth target of ‘around 5.0%’. This was in line with our expectations and the broader consensus. Li added that this target will not be easy to achieve. As we wrote in a recent China comment (see here), although the 2024 growth target is the same as last year’s and a bit below actual growth in 2023 (5.2%), it is in fact putting the bar higher. That’s because there will be no reopening bonus as in 2023, while headwinds from the property sector and the global environment are still in place. All of this is also reflected in the fact that the 2024 target is higher than the median consensus growth forecast (4.6%), including ours (4.7%). It remains to be seen whether the additional stimulus announced (see below) will be sufficient to shift sentiment in the private sector and break the negative feedback loop in real estate. There is a clear possibility that Beijing has to come with additional support in the course of the year. All in all, we judge downside and upside risks to our growth forecasts to be more or less balanced at the moment.

Fiscal support being stepped up, but not aggressively

Compared to last year,the initial target for the (‘on balance’) budget deficit was kept unchanged at 3% of GDP, while the quota for the issuance of special local government bonds was raised only marginally (to CNY 3.9 trn, up from CNY 3.8 trn last year). Additional stimulus will come from the announced issuance of CNY 1 trn in ultra-long special sovereign bonds to finance infrastructure investment. In itself, this measure was already flagged earlier, but what was new was that Li signalled that the government would repeat the issuance of longer-term sovereign bonds in the coming years. These moves can be seen as a signal that the central government is taking a bigger role in fiscal stimulus programmes, given debt distress and financing constraints amongst several local governments. Although there are various definitions of the broader budget deficit, the net fiscal impulse stemming from these plans – including rollovers from last year – is estimated at around 1% of GDP (although on the other hand, debt/refinancing issues at troubled local governments could form a fiscal drag). We should add that the announcements made so far do not preclude the rolling out of more support measures (and an increase of the formal budget deficit) in the course of 2024, as was done in 2023.

What about the inflation target?

Remarkably, the CPI inflation ‘target’ was also maintained at around 3%, although China’s CPI inflation rate has been in negative territory over the past four months and the January 2024 figure (-0.8% yoy) was the weakest outcome since 2009. We should add that this ‘target’ should be seen as a cap rather than a concrete goal: last year’s realisation for average CPI inflation was only 0.2%, and the last time average CPI inflation was close to 3% was in 2019. It is likely that Beijing has kept this CPI ‘target’ unchanged in an attempt to restore confidence in China’s growth trajectory and the revival of domestic demand. In fact, we still expect deflationary pressures to ease in the course of the year, although we recently cut our annual inflation forecast further, to 1%. According to the work program, monetary policy will remain accommodative: it was stated that lending growth and the money supply would be equivalent to the projected (rather than the actual) rate of nominal GDP growth. We expect mini cuts in policy interest rates and RRRs to continue, alongside targeted lending programmes, also see here.