China’s National People's Congress meetings opened on March 5. The Chinese Premier Li Qiang delivered a government work report announcing a number of economic stimulus measures. Beijing still sets this year's economic growth target at around 5%, same as last year and in line with expectations. China also aims to achieve some major economic targets, including creating more than 12 million new jobs, a surveyed urban unemployment rate of around 5.5%, a CPI increase of around 3% and growth in personal income in step with economic growth. The deficit-to-GDP ratio is set at 3% based on maintaining a basic equilibrium in the balance of payments. We need to take a cautious view of whether China will be able to meet its growth and employment targets in the face of many uncertainties.
The latest World Economic Outlook (WEO) report published by The International Monetary Fund (IMF) raised China’s growth forecast to 4.6%. J.P. Morgan’s GDP growth expectation for China is 4.9%. The World Bank raised its projection of China's growth to 5.6% in its latest Global Economic Prospects report, an obvious increase compared to a 4.3% forecast in January. The Center for Forecasting Science at the Chinese Academy of Sciences confidently predicted China’s GDP to grow at around 5.3%. Main reasons include 4.2% to 5.1% nominal consumption growth, which is the main driver for economic growth, a noticeable acceleration of investment growth and expected improvement in the real estate sector.
Several recently-released indicators show signs of optimism. The Caixin manufacturing PMI stood at 50.9 in February, a slight increase of 0.1 percentage points from the previous month and above the boom and bust line of 50 for four consecutive months for the first time since the second half of 2021. This means that China’s manufacturing industry is continuing an upward trend. The service PMI was 52.5, 0.2 percentage points lower than the previous month, but China has seen a 14th consecutive month of expansion in the service sector. According to the 2023 foreign trade data released by China’s General Administration of Customs, total exports of the "new three" products, namely electric vehicles, lithium ion batteries and solar panels, surpassed the trillion-yuan mark for the first time. Growth momentum from last year will continue in 2024. Other important engines for China to march toward high-quality economic growth include developing the digital economy and AI, promoting strategic emerging industries such as biomanufacturing, commercial aerospace and low-altitude economy and exploring future industries such as quantum and life sciences.
The Two Sessions also made clear that China will refine real estate policies and meet justified financing demands of real estate enterprises under various forms of ownership on an equal basis to promote the steady and healthy development of the real estate market. In the financial aspect, in an effort to solve the funding problem for the construction of major projects, China will issue ultra-long-term special treasury bonds for several consecutive years starting from 2024, planning to issue 1 trillion yuan of such bonds this year. This is the first time that China proposes to issue special treasury bonds for several consecutive years, demonstrating an expansionary fiscal policy. China will provide water and a more stable environment for economic growth. The NDRC report states that China will promote an active transformation of the real estate sector by “establishing the new before changing the old.” This is expected to gradually improve the real estate market. It is also noteworthy that China emphasized several measures at the meeting to attract foreign investment and boost foreign investors’ confidence. China will further shorten the negative list for foreign investment, abolish all market access restrictions on foreign investment in manufacturing and ease market access restrictions for the service sectors including telecommunications and healthcare. Beijing will expand the Catalog of Encouraged Industries for Foreign Investment and incentivize foreign companies to reinvest in China. It will ensure national treatment for foreign companies and their participation in government procurement, bidding, and standard-setting processes in accordance with the law and on an equal footing. Steps will be taken to resolve issues such as cross-border flows of data. If the above-mentioned growth prospects remain optimistic and policy can be effectively implemented, China may have a chance to achieve the 5% growth target.
Stabilizing employment has been emphasized as a key task in recent years. Using a new method that excludes students, China’s National Bureau of Statistics released the surveyed unemployment rates for the 16 to 24 (14.9%), 25 to 29 (6.1%) and 30 to 59 (3.9%) age groups in 2023 on January 17. The surveyed unemployment rate in urban areas in 2023 averaged at 5.2%, 0.4 percentage points lower than the previous year. This year's surveyed unemployment rate in urban areas is set at around 5.5%, a slight increase from last year but reflecting a policy of prioritizing employment. The youth unemployment rate at the end of 2023 was much lower than the 21.3% in June, but the main reason was a change in methodology (some commentators believed that it was political manipulation). Expecting higher unemployment is a precautionary measure as more than 11.7 million college students will graduate this year and multiple uncertainties facing China’s economic recovery. Moreover, economic growth is closely related to employment and household consumption. China needs to achieve growth in time to boost employment and increase the CPI by 3%.
Democrats and Republicans are holding primaries. The 2024 U.S. presidential race is almost certain to be a rematch between Joe Biden and Donald Trump. Trump’s returning to the White House, if elected this year, will definitely be the biggest black swan. He will impose a 10% tariff on all foreign products entering the United States, weaken transatlantic partnership, stop U.S. support for Ukraine and in particular take a confrontational stance against China. Trade war and technology war will undoubtedly intensify. Trump’s winning the U.S. presidential race will not only have a key impact on global political and economic development but may also trigger fluctuations in financial markets and threaten global and China’s economic growth.
（Wo-chiang Lee, Professor of the Department of Banking and Finance at Tamkang University）
（Excerpt translated into English by Cindy Li）
