Why has China announced its lowest growth target in decades?

Beijing is aiming for a moderate growth rate of 5 percent in 2023 amid a host of domestic and external challenges.

Chinese officials and delegates attend the opening session of the National People's Congress at the Great Hall of the People in Beijing, China.
China is holding its annual gathering of the National People's Congress until March 13 [File: Thomas Peter/Reuters]

China is targeting economic growth of about 5 percent in 2023 — one of its lowest targets in decades.

Outgoing Chinese Premier Li Keqiang unveiled the target on Sunday at the opening of the National People’s Congress (NPC), China’s rubber-stamp parliament that is gathering until March 13, in Beijing.

The conservative target comes as Beijing seeks to rejuvenate the world’s second-biggest economy after scrapping its “zero-COVID” policy of lockdowns, mass testing and quarantine late last year.

Why does China have modest expectations for the economy in 2023?

China’s economy officially grew 3 percent in 2022 — well short of the target of about 5.5 percent — as tough pandemic restrictions, a property market slump, government crackdowns on private enterprise, and the United States-China trade war dragged on growth.

Excluding 2020, when COVID-19 upended the global economy, last year’s economic growth rate was the lowest since 1976, the last year of Mao Zedong’s cultural revolution.

Although China’s economy appears to be rebounding strongly from the pandemic — manufacturing activity in February, for example, smashed expectations, expanding at the fastest pace in more than a decade — Chinese officials have warned of risks ahead.

While acknowledging China’s “vast potential and momentum for further growth,” Li pointed to the rise of “uncertainties in the external environment,” including high inflation, and “external attempts to suppress and contain China” — a thinly-veiled reference to the country’s heated geopolitical competition with the US.

China’s economy faces serious long-term challenges domestically, too, including an enormous housing bubble and a shrinking working population due to a rock-bottom birth rate.

Many economists believe that China’s high-growth era — characterised by decades of double-digit expansion each year — is now in the past.

In a report released in March last year, the Australian think tank Lowy Institute predicted the Chinese economy will grow an average of 2-3 percent each year until 2050 — casting doubt on long-held assumptions China will overtake the US as the world’s biggest economy in the coming decades.

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 stabilise spending on “big-ticket items”.

Li said the government would aim for a fiscal deficit of 3 percent relative to the gross domestic product (GDP) in 2023, up slightly from 2.8 percent last year.

Li also put heavy emphasis on job creation, setting out a goal of 12 million new urban jobs in 2023, up from a target of 11 million jobs in 2022.

“To my mind, they are managing expectations,” Alicia García-Herrero, chief economist for the Asia Pacific at Natixis in Hong Kong, told Al Jazeera.

“If you look at the details, they are announcing less issuance of special government bonds because they did a lot of front-loading and they don’t want to make a budget deficit.”

Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, said the modest target may also be a holdover from the more pessimistic economic outlook that held sway during the Central Economic Working Conference, a key annual economic conference, in December.

“Global outlook was more challenging back then, with the US and Europe on the edge of recessions,” Zhang told Al Jazeera.

“China’s economic recovery was also unclear. Given the complete reshuffling of the government, a key issue to watch in the next few months is how the new leaders will boost private sector confidence. This is more important than the fiscal and monetary policies, in my view.”

Will China hit its growth target?

Most economists believe that China will be able to hit, and perhaps exceed, 5 percent growth in 2023, especially with the economy coming off a low base last year.

“It is not overly optimistic and does not spend too much to boost growth,” the ING financial group said in a note. “It focuses more on longer-term growth challenges. In our view, achieving these targets would not be very challenging.”

Beijing’s target should be seen as the “floor of growth the government is willing to tolerate,” said Zhang of Pinpoint Asset Management.

“Indeed given the very low base of economic activities last year, it is unlikely to see growth drop below 5 percent,” he said. “There is no fiscal stimulus from the NPC, which is not surprising as the economic recovery is already on track.”

Natixis’s García-Herrero said China’s economy will “probably” expand more than 5 percent this year.

“I would say they know the economy is not going to grow eight percent or anything like that, but surely about five,” she said.

Source: Al Jazeera