China party congress

Two sessions: no surprise is the biggest surprise

What happened?

On March 5th China opened its annual session of the national congress. The Government Work Report, which laid out major economic targets and policy priorities for 2024, was unveiled at the meeting. EIU maintains its growth forecast at 4.7%, meaning that we do not currently expect China to meet the upper bound of official target of about 5%.

Why does it matter?

Major targets on GDP growth (about 5%), inflation (3%) and fiscal policy offer little surprise versus our earlier expectations that strong public investments will be needed to support an ambitious growth agenda. Although the growth target is unchanged from that for 2023, it will be more difficult to achieve, as effects of pent-up demand will have faded and challenges surrounding the property sector remain salient. 

The fiscal stance remains expansionary. While the headline general government budget deficit target of 3% is moderate, additional stimulus will come from the Rmb1trn (US$139bn) issuance of long-term special Treasury bonds, which do not count into the official budget deficit. The report has indicated that such bonds will continue to be issued beyond 2024 to support strategic priorities and national security-related areas. This ushers in a new model that central government will play a more prominent role in maintaining relatively high growth by tapping into its own borrowing space. 

Industrial and technological advancement is further prioritised, suggesting even stronger adherence to supply-side economics. The development of “new productive forces”, a phrase coined by Xi Jinping, the president, and referring to productivity enhancements, tops the list of policy priorities in the report for the first time. The highlighting of industrial upgrade, research and development incentives and increased education spending reveals leaders’ anxiety over China’s ability to maintain supply-chain security and create cutting-edge technologies. Related efforts could be partly funded by the aforementioned special Treasury bonds. The emphasis on productivity, however, suggests that efforts to stimulate consumption will probably fall short.

The report fails to dispel our deep concerns over the property sector, a major source of downside risk. The report struck a policy tone that was little changed from previous meetings, with policy remaining concentrated on city-level demand support, affordable housing construction and “indiscriminate” financing support to property developers (which has not worked well). The lack of more responsive and aggressive bail-outs of troubled developers foreshadows a grim outlook in 2024, as more firms will struggle to meet their financial obligations. 

What next?

The absence of any positive surprise, as well as property concerns, will preclude us from revising up our growth outlook. The conservative tone at the two sessions affirms our cautious outlook for the upcoming third plenum of the Chinese Communist Party’s central committee. 

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.