China is increasingly ambitious with its 2023 growth target of 6 percent in a bid to boost investor and consumer confidence and build on a promising post-pandemic recovery, according to sources involved in the discussions.
Four of the sources said China would likely aim for growth of up to 6 percent, while three others said the target was between 5 percent and 5.5 percent. All of them spoke on condition of anonymity as the talks were held behind closed doors.
Taken together, these figures point to increased optimism in Chinese political circles compared to November, when government advisers recommended more modest targets ranging from 4.5% to 5.5%.
The previous recommendations were made weeks before China lifted the world’s toughest COVID-19 restrictions. The latest data shows that the economy is recovering from the pandemic at a better-than-expected pace.
The ultimate growth target, which may be a fork, will be announced on March 5, at the start of China’s annual legislative meeting.
“This year’s growth target could be 5-6%,” said one of the people involved in the discussions. “We need to achieve an economic recovery, boost jobs and confidence, these are the key factors that we need to take into account.”
One of the three sources advocating a more modest target warned that “the real estate sector continues to fall and it is difficult to fill the gap, while foreign trade is likely to weigh on economic growth this year.”
None of the seven sources participate in the final decision-making process.
According to four of the people consulted, the government also plans to present more stimulus measures during this month’s National People’s Congress to mitigate the impact of the weak housing market and declining global demand for its exports.
To spur growth, the government is expected to increase its annual budget deficit to about 3 percent of gross domestic product this year and issue about 4 trillion yuan in special bonds to support investment spending, the sources said.
The new economic leadership team, which is expected to be headed by former Shanghai Communist Party chief Li Qiang as China’s new premier, is eager to demonstrate its ability to achieve higher economic growth that creates more jobs and eases funding strains on local governments. the sources said.
In 2022, the Chinese economy grew by 3% from the previous year, a major failure from the official target of around 5.5%, as the COVID-19 pandemic, real estate market tension and slowing global demand took a heavy toll. Excluding 2020, when the pandemic began, it was the worst result since 1976, the final year of Mao Zedong’s decade-long Cultural Revolution, which tore the economy apart.
It has also been the biggest breach of a growth target. Previously, China had only narrowly missed the target during the Asian financial crisis of the late 1990s and during a currency crisis in 2014-15.
The last time China set a target range was in 2019, between 6 and 6.5%.
Some economists argue that China’s ambitious annual growth targets are counterproductive, and that economic leaders should focus instead on structural reforms to improve the sustainability of any economic expansion.
In the past, ambitious targets have pressured local governments to launch costly infrastructure projects, which have contributed significantly to China’s global debt of nearly 300% of economic output.
Three of the sources also stated that China will maintain the 3% inflation target.
Consumption and services lead China’s recovery so far this year. Manufacturing activity also expanded in February at the fastest pace in more than a decade, an official survey showed on Wednesday, beating expectations.
Iris Pang, chief economist for the Greater China area (which includes the People’s Republic of China, with its special administrative offices in Hong Kong and Macau, and Taiwan) of ING (AS:INGA), said in a note that this week’s optimistic data gave the government compelling reasons to set a high growth target of between 5.5% and 6%.
On March 5, outgoing Premier Li Keqiang is due to present the government’s work report for 2023, which includes key economic goals and political priorities.
On Wednesday, state media quoted Li as saying the government was still amending the work report.
“This year’s growth will be above 6 percent, which is not elevated considering last year’s low base,” Yu Yongding, an influential government economist who previously advised the People’s Bank of China, told Reuters.
Yu said a growth target above 6 percent would help “lift spirits and stimulate China’s economic growth potential.”