2024-03-22 14:33:26
The Communist Party of China holds the National People’s Congress this Tuesday and everything indicates that Chinese Prime Minister Li Qiang will maintain his economic growth goal at 5% for this year. All this while the country is going through its biggest real estate crisis ever known, an increase in public debt (whose figure is totally opaque), an increase in urban unemployment, especially among youth, and rampant deflation.
The key to this meeting that the national legislature will hold in Beijing this week is the ambitious economic plan for maintain that 5% growth target. It must be remembered that last year there was also a 5% increase in GDP at the end of the year and the performance of the Chinese economy surprised all analysts. The Asian giant struck a chord and closed the year with an expansion of 5.2%.
This economic boost “is not the result of broad stimuli” but of “internal factors,” Li said at the World Economic Forum, which took place in mid-January of this year in the Swiss town of Davos.
Still, experts do not believe China will be able to meet its growth targets this year. In a survey conducted by Bloomberg to 27 economists about this annual meeting of the Communist Party of China, they conclude that Yes, it is possible that this growth objective will be announced similar to last year but “it will be more difficult to achieve a higher comparison base,” they reiterate.
Thus, the IMF expects GDP growth to slow to 4.6% this year according to its November predictions. The institution assured that this ‘slowdown’ in 2024 will be due to the “persistent risks” of the fall in the real estate sector and weakened external demand.
Another of the keys that the prime minister is expected to announce is the fiscal deficit. At the beginning of the year, the Minister of Finance, Lan Foan, assured in an interview in the People’s Daily that this year they will increase their fiscal spending. Lan did not want to give figures but experts expect it to be established in the range of between 3.3% and 3.5% of GDP.
In general terms, the prime minister’s announcement is expected as a kind of preamble to what Beijing intends to do throughout this year to shore up its economy in the face of worse performance in recent years. But given Li’s statements in Davos, everything indicates that they are not going to opt for the “shock” of stimuli, but rather that they will be quite orthodox in the decisions they make.
The Maybank Securities economist, Erica Tay, assured that the expectation of these March sessions is that “they will produce an important political stimulus” but reiterates that no matter how much the authorities announce ambitious growth objectives “the economy continues to be burdened by excess capacity and the fall of the real estate sector.”
The journalist and expert in Asian economic information for the BBC, Karishma Vaswani, assured in a comment that what Xi Jinping has to do now is take advantage of the optimism that the good data for 2023 showed and “follow the model of some of his predecessors.” , who were able to guide China through periods of difficulty (…) the Chinese people should feel positive about their prospects.”
The propaganda of “the new forces”
The Politburo was doing what it does best in moments leading up to big announcements: propaganda. The dogma repeated ad nauseam was that of “the new productive forces.” Specifically, the hard core of the Communist Party declared that “it is imperative to promote efforts to modernize the industrial system and accelerate the development of new productive forces.” The state news agency Xinhua issued the message that businessmen are “enthusiastically” seeking these “new forces” and are “stimulating the revival of northwest China.”
What this dogma refers to is sectors such as electric vehicles, artificial intelligence, renewables, advanced infrastructure or cutting-edge semiconductors.
Still, experts believe that a large stimulus from these “new productive forces” is unlikely to be enough to replace the old system, especially in the case of the real estate sector.
Still, these new productive forces are succeeding. China is becoming tremendously competitive against its Western rivals. With the electric vehicle they managed to displace Japan as the world’s main exporter, they also surpassed the United States in installing solar panels and are catching up when it comes to microchips.
The idea in Beijing is that these industries will not only make China globally competitive against its Western rivals, but will also expand a high-income workforce, which can then boost consumption. It shows how the government is going beyond traditional fiscal and monetary policy and leading with bold supply-side reforms, advocates say.
The problem is that the greatest contribution to growth in China’s employment came from the services sector in the last decade. “There is no particular reason for that to change,” Gavekal’s head of research said in a presentation this week. In the end these companies represent “a fairly small proportion” of the workforce, he said.
Thus, China’s growth is deteriorating to the point that the International Monetary Fund predicts that in 2028 GDP will be around 3.4%.
Source: El Economista Magazine