© Reuters. People look at the skyline of the central business district (CBD), on the day of the opening session of the National People’s Congress (NPC), during a hazy day in Beijing, China, March 5, 2021. REUTERS/Thomas Peter/ File Photo
SINGAPORE (Reuters) -China will target economic growth of around 5% this year as it works to transform its development model, curb industrial overcapacity, defuse property sector risks and cut wasteful local government spending, Premier Li Qiang said on Tuesday.
The National People’s Congress (NPC), kicked off its annual session on Tuesday, announcing its economic and social targets, including plans to keep the 2024 fiscal budget deficit at 3% of GDP.
COMMENTS
SU QIAN, HEAD OF ASSET MANAGEMENT ASIA, INDOSUEZ WEALTH MANAGEMENT, SINGAPORE:
“The announcement of the government’s growth target during the NPC at 5% for 2024 is being closely scrutinised. This target plays a decisive role in shaping key policy variables, including fiscal deficit and credit growth. We believe China may introduce more measures later, including rate cut and policies to support the growth target. The plan to issue one trillion yuan of special ultra-long central government bonds is seen as one of the more effective options. All in, we believe the market will be volatile if more policy updates are released during the NPC.
BEN BENNETT, APAC INVESTMENT STRATEGIST, LEGAL AND GENERAL INVESTMENT MANAGEMENT, HONG KONG:
“The headline growth and deficit targets are as expected, so policymakers seem happy with the current trajectory. That’s disappointing for those that hoped for a bigger push from the report. It will be more difficult hitting the growth target this year because China isn’t benefitting from the 2023 post-COVID rebound.
“There’s rhetorical support for local government debt and the property sector, but the key is how this is applied in practice.
“Chinese equities have rebounded in February, with signs of foreign buying of onshore stocks. To maintain this momentum, we’d like to see recent regulatory intervention matched with more support for the real economy.
ANINDA MITRA, HEAD OF ASIA MACRO AND INVESTMENT STRATEGY AT BNY MELLON INVESTMENT MANAGEMENT:
“The growth targets were not a surprise, but seem ambitious in view of only modest fiscal support whose headline numbers seem largely unchanged from 2023.
“That said, the “cash for clunkers” deal to replace existing durable goods for new items is an innovative way to conflate consumption demand with heightened production. It may provide a short-term boost to equity markets, especially amid cheap valuations and light positioning.
“But it doesn’t fundamentally alter the long-term supply-demand imbalance in China’s economy, nor does it avert the deflationary tendencies in the economy. What’s more, we think the risk of a ‘fiscal cliff’ will linger, unless additional stop-gap measures are found.
“We would view a sell-off in CGB (China government bond) duration, which accompanies any short-term equity market run up, as an opportunity to add to Chinese duration (and on an FX-hedged basis.)”
CARLOS CASANOVA, SENIOR ECONOMIST FOR ASIA, UBP, HONG KONG:
“Unfortunately, the higher GDP target was not supported by resolute fiscal and monetary policy support, with most targets remaining in line with 2023. The only exception was the issuance of 1 trillion yuan in ultra-long term special government bonds, that will be used to support the real estate sector.
“Against the backdrop, we believe it will prove challenging for the government to achieve its GDP growth target… Therefore, we have kept our GDP growth forecast unchanged at 4.5%. That is not conducive to double-digit earnings returns, leaving Chinese equities exposed to a potential downside risks, in case analysts revise down earnings expectations.”
ROCKY FAN, ECONOMIST AT GUOLIAN SECURITIES, SHANGHAI
“I think this target is in line with expectations. Of course, there are still challenges to reach this goal, as there’s no more low-base effect, and there’s still a big drag from the property sector.
Personally, I’m optimistic, as China is similar to countries other than Japan that can walk out of a cyclical recession. China is strong in capital expenditure, and macro data has started to improve in the first quarter, including total social financing, PMI, Spring Festival spending.
And since the second half of last year, corporate profit has started to improve and capex spending has been strong.”
GARY TAN, PORTFOLIO MANAGER, ALLSPRING GLOBAL INVESTMENTS, SINGAPORE:
“Optics-wise, the key major indicators of the budget plan is likely to signal to investors that China continues to hold out using stronger stimulus to boost the economy.
“The plan to issue the 1 trillion yuan of ultra-long special central government bonds since 2020, if extended beyond this year, could signal increasing involvement of central government finances to spur China’s economic recovery. Overall we see the growth targets as realistic if global macro conditions do not deteriorate further.”
TOMMY XIE, HEAD OF GREATER CHINA RESEARCH, OCBC BANK, SINGAPORE
“It looks like the target was quite in line with the expectations.
“But, of course, the other thing is the fiscal deficit targets.. I think this target is quite interesting that in the past few months the target has been brought down gradually…”
“So I think from that perspective, it means China is unlikely to do a big bazooka-style kind of the stimulus, I think there are still a lot of constraints at the moment in terms of how China can support the economy via fiscal expenditure.”
CHI LO, SENIOR MARKET STRATEGIST, ASIA PACIFIC, BNP PARIBAS ASSET MANAGEMENT, HONG KONG
“Beijing is trying to manage market expectations on China’s outlook by setting a 5% growth target. It is a realistic target if the authorities can continue the assertive easing measures for longer.
“From a macroeconomic policy perspective, to counter the deflation risk so that structural reforms and debt reduction can proceed, Beijing needs to pump-prime the system by aggressive easing to protect economic growth with determination during China’s structural transformation, or ‘creative destruction’, process which old industries are being destroyed while new industries are being created.”
