5% growth target: How China aims to transform its economy
Chinese Premier Li Qiang has announced an economic growth target of 5% for 2024, emphasizing plans to transform China's development approach and address risks caused by failing property developers and debt-ridden cities. In his first work report at the National People's Congress annual meeting, Li also mentioned increased defense spending and stronger rhetoric on Taiwan. Experts believe that maintaining growth similar to last year's (5.2%) will be challenging to achieve as the post-COVID recovery has slowed down.
Li calls for transformation and structural adjustments
Li, speaking in the Great Hall of the People in Tiananmen Square, said, "We should not lose sight of worst-case scenarios." "We must push ahead with transforming the growth model, making structural adjustments, improving quality, and enhancing performance." However, Li did not provide a timeline or specific details for the structural changes China plans to implement, stressing that stability is "the basis for everything we do."
Fiscal stance and monetary policy to support growth target
Li admitted that achieving the target "will not be easy" and called for a "proactive" fiscal approach and "prudent" monetary policy. He said the target takes into account "the need to boost employment and incomes and prevent and defuse risks." The International Monetary Fund predicts China's 2024 growth at 4.6%, dropping to 3.5% in 2028. Chinese stocks and the yuan remained mostly unchanged today following Li's ambitious plans.
China continues to increase defense spending
China intends to raise defense spending by 7.2% this year, similar to 2023, a figure closely monitored by the US and China's neighbors, who are concerned about its strategic intentions amid escalating tensions over Taiwan. China's defense budget has doubled since President Xi Jinping took office over a decade ago. Li also highlighted increased resources for tech innovation and advanced manufacturing, aligning with Xi's push for "new productive forces," and announced plans to remove foreign investment restrictions in manufacturing sector.
Challenges in achieving 5% growth target
Tao Chuan, chief macro analyst at Soochow Securities, said, "It's more difficult to achieve 5% this year than last year because the base number has become higher." China began the year with a stock market crash and deflation rates not seen since the 2008-09 global financial crisis. The property crisis and local government debt issues are major hurdles for China as it formulates new economic policies. India is also steadily grabbing electronics export market share from China.