China said 2024 GDP should grow around 5%, with CPI of about 3%. The deficit target is 3%of GDP, while the jobless rate should be about 5.5% as China moves to create over 12 million new urban jobs in 2024. In fact IMF had earlier projected the global economy to grow by 2.9 per cent in 2024 taking into account China’s declining level in the last two years, but reports say that IMF is inclined to scale up the global growth to 3.1 per cent on the basis of the expected revival of Chinese economy in 2024 and beyond.

Chinese Prime Minister was quite candid in admitting that the challenges facing the world’s second largest economy are manifold and it is not that easy to fulfill the targets. This needs policy supports and joint efforts from all fronts. The report mentioned that the top priorities are still technological innovation and upgrading the industry including new energy cars. Without saying so in report, it was apparent that the Chinese leadership accepted its failure in speedy modernization of the automative sector, especially the electrical vehicles industry.

Interestingly, the housing sector, the bubble of which created doubts about the sustainability of the booming real estate market, was dealt in a more friendlier manner compared to earlier years. Chinese supremo Xi Jinping, on a number of occasions mentioned of the role of speculators in the housing market, but this time in the PM’s report, a reconciliatory tone was seen towards the market. Taking into account the role of the real estate in the growth of Chinese GDP, the PM’s report mentioned of efforts to stabilize the property market.

In fact economic activity in China picked up in 2023, but the recovery remained fragile. Real GDP growth accelerated to 5.2 percent y/y in the first three quarters of 2023, driven by demand for services, resilient manufacturing investment, and public infrastructure stimulus. The initial phase of economic reopening triggered a surge in economic activity in Q1, but growth momentum decelerated rapidly in Q2 before recovering modestly in Q3. The volatile growth performance, compounded by persistent deflationary pressures and still weak consumer confidence, suggested continued fragility in the recovery.

Earlier the World Bank mentioned in its report that China’s growth is projected to slow to 4.5 and 4.3 percent in 2024 and 2025, respectively, reflecting short term headwinds but also growing structural constraints to growth, including high levels of debt, population ageing and persistent economic imbalances.. Now following the Chinese PM’s report at the NPC, reviews will be made whether the growth targets are sustainable.

As the World Bank sees it, the outlook is subject to considerable downside risks. The property market downturn could last longer than expected, weighing on consumer sentiment and spending and adding pressure on upstream suppliers and creditors. This would further squeeze local government revenue and dampen public investment. Externally, the economy is vulnerable to softer global demand due to tighter-than-expected financial conditions and heightened geo-political tensions. Climate change and associated extreme weather events, the frequency of which has increased in recent decades, also pose a downside risk. In contrast, stronger-than-expected policy support and further progress on structural reforms could present upside risks.

According to the Bank economists, the sustained policy support and deeper structural reforms are needed to hedge against downside risks to growth, stem deflationary pressures, and restore confidence. Given acute fiscal constraints at the subnational level, shifting a larger share of stimulus financing measures to the national government would expand the necessary fiscal space. The recently adopted budget amendment which envisages the use of national treasury bonds to finance natural disaster recovery and enhance relief capabilities is a welcome development in this regard.

The WB earlier recommended , deeper reforms of the intergovernmental fiscal system are necessary to resolve structural imbalances in local government finances and effectively tackle the local government financing vehicles (LGFV) debt problem. This should include corporate and financial restructuring of LGFVs, for example by unbundling—and possibly divesting from—purely commercial assets. Similarly, in the real estate sector, short-term regulatory easing and liquidity support need to be complemented by the development of a framework to resolve the corporate debt overhang.

Chinese economists have also found that China's investment deceleration has been one of the key drivers of the overall growth slowdown in recent years. Together with the decline in aggregate investment growth, there has been a marked shift in the composition of investment. The prolonged real estate slump has led to a sharp and persistent decline in real estate investment which fell by a cumulative 18 percent in the past two years. In contrast, investment in the manufacturing sector, where returns are generally higher, has been much more resilient, expanding by a cumulative 16 percent in the same period. The resilience of manufacturing investment, to a certain degree, is a response to surging demand for products such as electric vehicles (EVs), batteries, and other low carbon technologies, but also reflects growing government support for priority manufacturing sectors such as semiconductors.

The first day’s work report on economy signifies that the Chinese Communist Party leadership is taking a soft position now taking into account the need for bridging the gaps in economic performance. There is every signal that during the current year, the focus will be on economy, bringing synergy in all the sectors which are responsible for the growth momentum, specially housing and manufacturing. The political situation may remain as it is till the year end- the holding of Presidential elections in November 5 this year. So for the CPC and the NPC, the economy is getting maximum focus in the seven day session. (IPA Service)