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China sets GDP target of 'around 5%' by 2024

by SuperiorInvest

BEIJING – China set a growth target of “around 5%” for 2024 and announced the issuance of special “ultra-long” bonds for large projects, according to a government work report on Tuesday.

Premier Li Qiang, who presented the report, also promised that China would remove restrictions on foreign investment in the manufacturing sector.

China set a deficit-to-GDP ratio of 3% for the year, down from a rare upward revision to 3.8% late last year from the original 3%.

The working report also says Beijing will issue 1 trillion yuan ($138.9 billion) in special “ultra-long” Treasury bonds this year to finance major projects aligned with national strategies, while 3.9 trillion yuan will be issued in special purpose bonds for local governments. This year, 100 billion yuan more than last year.

“We must appropriately increase the intensity of our proactive fiscal policy and improve its quality and effectiveness,” the working report said.

The budget deficit excludes special bonds, policy bank bonds and debt from local government financing vehicles, according to Louise Loo, chief economist at Oxford Economics, who last week forecast a deficit of 3% to 3%. 5%.

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An IMF report earlier this year said its conversations with Chinese officials indicated they viewed last year's fiscal policy as proactive.

“Special ultra-long-term Treasury bonds issued on a trial basis will not be included in the deficit and may be issued at an appropriate time based on economic and market conditions under the trend of moderately increasing leverage of the central government to guarantee flexibility,” Bruce Pang, chief economist at real estate consultancy JLL, said in a CNBC translation of his comments.

“They can gradually replace the issuance of local special bonds to better support the country's important and long-term strategic planning and the construction of key areas and the implementation of large-scale infrastructure projects,” he added.

Two Sessions

The targets for GDP and other economic indicators were released as part of the opening of the annual meeting of the National People's Congress in Beijing, attended by more than 2,800 delegates on Tuesday.

Last year, China's economy grew 5.2%, matching the official target of around 5%. The overall recovery from the pandemic was slower than many expected, while growth also faced obstacles due to the decline in the real estate sector and exports.

This year, China plans to achieve an urban unemployment rate of around 5.5%, the creation of 12 million new urban jobs and an increase in the consumer price index of around 3%. The objectives for 2024 were the same as those set for 2023.

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In 2023, the National Statistics Office said the country had an average unemployment rate of 5.2% in cities and created 12.44 million jobs. However, the consumer price index rose 0.2% amid lackluster demand.

The work report emphasized the need to “ensure both high-quality development and greater security,” preventing risks and maintaining social stability, among other tasks.

He called for implementing the decisions and plans of the Central Committee of the Communist Party of China.

China's economic policies for the coming year are usually discussed by top party leaders in December. Local governments hold their own meetings to set regional growth targets, before the National People's Congress announces the target for the entire country.

In recent years, Beijing has downplayed the figure in favor of what it calls “high-quality” growth.

Chongqing Mayor Huang Henghua told reporters on Tuesday that the municipality aims to increase its GDP from 3 trillion yuan last year to 4 trillion yuan by 2027.

While “very difficult,” the municipality also has “the foundation and conditions” to achieve such growth “with a small leap,” Huang said, according to a CNBC translation.

Chongqing is one of the largest cities in China and depends directly on the central government, like Beijing and Shanghai.

Deactivate risks

The working report states that “internal engines of development are being built,” but adds that the country must be “well prepared for all risks and challenges.”

China committed to improving long-term mechanisms to prevent and control risks.

“We will implement a package of measures to defuse risks caused by existing debts and protect against risks arising from new debts,” Beijing said in the work report. “We will take prudent measures to defuse risks in small and medium-sized financial institutions in some localities and take tough measures against illegal financial activities.”

China also pledged to “meet the justified financing demands of real estate companies under various forms of equal ownership” and “make concerted efforts to defuse the debt risks of local governments while ensuring stable development.”

China's real estate problems are closely linked to the finances of local governments, as they have historically relied on selling land to developers for a significant portion of their revenue.

The property market plunged after Beijing cracked down on developers' high reliance on debt for growth in 2020, bankrupting some of its biggest property developers and hurting consumption and economic growth. broader in the world's second largest economy.

“Preventing and defusing risks in certain fields remains a challenging task,” the National Development and Reform Commission, China's top economic planning agency, said in its annual work report.

“Hidden risks, such as debt-related risks and financial risks, are still prominent in some localities, and time is needed to foster a new development model for the real estate sector.”

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