China’s National People’s Congress implies little change from 2023

China’s real gross domestic product (GDP) growth target for 2024 was set at “around 5%” (see Chart 1).¹ While this is the same as the target for 2023, it will be more difficult to achieve from a purely mathematical perspective given the relative lack of supportive base effects this year.² It is difficult to gauge what Beijing will accept as being within the range of “around 5%”. Whether or not the International Monetary Fund’s January forecast for 2024 GDP growth of 4.6% falls under this umbrella, for example, is unclear.³

Chart 1. China’s official annual GDP growth target and GDP growth (% change, year-on-year)

Source: LSEG Data & Analytics and EFGAM calculations. Data as at 06 March 2024.

Thus, it is difficult to properly judge the levels at which Beijing would deem it appropriate to increase, or even taper stimulus. It could be that the catalyst for stimulus would be evidence of widespread social unrest and that the authorities view the growth target as the level of growth needed to avoid this. Plainly, this increases risks both to the upside and the downside.

China’s inflation target was also unchanged, at 3%, though its credibility is questionable given inflation has been in a declining trend since late 2022 and the Consumer Price Index (CPI) measure has been in negative territory for the past four months. January’s data saw the fastest rate of deflation since 2009 for the headline CPI index and core inflation has been closer to zero than 3% since the start of 2020 (see Chart 2). These data highlight subdued consumer demand alongside weak sentiment.⁴ While there were statements supportive of “expanding domestic demand” at the NPC, no concrete policies have yet been announced.⁵

Chart 2. China’s CPI inflation (% change, year-on-year)

Source: LSEG Data & Analytics and EFGAM calculations. Data as at 06 March 2024.

A possible explanation for weak consumer confidence is China’s struggling real estate sector. Falling house prices create a negative wealth effect, acting as a constraint on consumption. Nonetheless, there was nothing suggesting significant policy support will be provided for the property sector this year. Beijing appears focused on preventing the situation materially worsening rather than changing its course.⁶ With no signs that property prices have bottomed out, the sector is likely to continue to drag on growth in 2024 (see Chart 3).

Chart 3. China’s residential property prices (% change, year-on-year)

Source: LSEG Data & Analytics. Data as at 06 March 2024.

Regarding stimulus, Premier Li Qiang announced a target fiscal deficit to GDP ratio of 3% for 2024. This was disappointing in the sense it fell below 2023’s upwardly revised 3.8% target, which had initially also been set at 3%. The increase in local government special bond issuance from RMB 3.8 trillion to RMB 3.9 trillion is also unlikely to have much impact beyond preventing a decline in infrastructure investment.

However, Beijing’s desire to support investment, the second largest driver of growth in 2023, was evident in its declaration that it will issue RMB 1 trillion of ultra-long special Treasury bonds in 2024. This is considered off-budget debt and equates to 0.8% of nominal GDP, meaning it could have a material impact. It is possible the debt is used to fund projects that boost short-term GDP growth as a means of trying to hit the growth target. Hence, the policy could be viewed more as insurance than as something that will fundamentally improve the growth outlook.

In summary, 2024’s NPC brought little meaningful change in terms of policy targets. While there were indications that fiscal policy could become slightly more supportive, the impact is yet to be seen and is more likely to represent insurance against downside risks to growth. The GDP growth target will be more difficult to achieve than in 2023 given the lack of supportive base effects and the inflation target has lost credibility. In some respects, this is the lens the NPC can be viewed through: continuity amid growing scepticism, particularly given China is trying to grow its economy whilst simultaneously deleveraging.⁷

¹ Highlights of Chinese government work report: https://go.pardot.com/e/931253/S65e6742bc6d0868f4e8e4a2d-html/3zndm/340719972/h/KNU1fZxL2QoSLGLTF6zUsuob-z8GcwFGX0-ayO49nhA
² See EFGAM Macro Flash Note, ‘China: a year of base effects and property sector deleveraging’ (January 2024)
³https://go.pardot.com/e/931253/ic-outlook-update-january-2024/3zndt/340719972/h/KNU1fZxL2QoSLGLTF6zUsuob-z8GcwFGX0-ayO49nhA
⁴ China’s consumer confidence index was at 88.9 in January 2024. The index is constructed to take a score between 0 and 200, with 0 indicating extreme pessimism, 200 indicating extreme optimism, and 100 indicating neutrality.
⁵https://go.pardot.com/e/931253/S65e68c34c6d0868f4e8e4aad-html/3zndx/340719972/h/KNU1fZxL2QoSLGLTF6zUsuob-z8GcwFGX0-ayO49nhA
⁶https://go.pardot.com/e/931253/S65e67f6ec6d0868f4e8e4a72-html/3znf1/340719972/h/KNU1fZxL2QoSLGLTF6zUsuob-z8GcwFGX0-ayO49nhA
⁷ See EFGAM Macro Flash Note, ‘China’s Impossible Trilogy’ (August 2023)