China’s economic story last year was one of uncertainty and a lack of confidence. The country is still in the midst of a property crisis, and consumers aren’t spending as freely as before.
Yet despite the doom and gloom, Beijing is targeting growth of “around 5%” this year, unveiled as part of Chinese Premier Li Qiang’s address during the “Two Sessions,” a major event in China’s political calendar where the country unveils its economic policies for the year.
On Tuesday, Li said that China would aim to create 12 million jobs in urban areas, maintain the jobless rate at 5.5%, and set a consumer inflation target of 3%. The government will also release around 1 trillion yuan ($138.9 billion) in “ultra-long” special treasury bonds to fund major projects aligned with China’s strategic priorities.
But Li also acknowledged the uncertainties plaguing the Chinese economy.
“The foundation for China’s sustained economic recovery and growth is not solid enough,” Li said.
China is still grappling with its years-long property crisis, as home prices continue to fall despite government support. A 5% decline in home prices wipes out 19 trillion yuan ($2.6 trillion) in housing wealth, according to Bloomberg Economics.
Despite an emphasis on defusing risks and promoting health long-term growth, Li’s address did not include “concrete measures in stabilizing the property market,” HSBC analysts wrote.
China also faces the threat of deflation. Consumer prices fell 0.8% in January, the fastest rate in more than 14 years.
Analysts largely expected Beijing to set a growth target of 5%. Yet they still termed the goal as ambitious, due to the issues still plaguing the Chinese economy. 2024’s growth target will be “much harder to achieve” due to a higher base of comparison, Larry Hu, chief China economist at Macquarie, wrote in a research note Tuesday.
China reported 5.2% growth in 2023, but relative to a lower base as tough COVID-zero policies in 2022 constrained the country’s economy.
‘One should not invest in China’
China is trying to project confidence amidst its economic issues, but overseas investors may already be giving up on its economy.
Investors shouldn’t be attracted to cheap Chinese equities, battered by a lengthy markets slump, Sharmin Mossavar-Rahmani, chief investment officer for Goldman Sachs’ wealth management business, said on an interview with Bloomberg Television aired on Monday, ahead of the Two Sessions. “One should not invest in China,” she warned.
Mossavar-Rahmani pointed to three weaknesses in particular—property, infrastructure, and exports—for her bearish view. She also blamed a lack of clarity on policymaking and patchy economic data.
Surprise changes in policy have buffeted China’s private sector. For example, regulators unveiled tough draft restrictions on the video game industry in late December, wiping $80 billion in value from gaming stocks. The new rules surprised many analysts who felt that Beijing’s crackdown on the industry was over. To make matters more unclear, regulators later removed the draft rules from their website.
“Policy uncertainties generally put a little bit of a cap on the equity market,” Mossavar-Rahmani said.
Mossavar-Rahmani said she was unconvinced by China’s growth rate of 5.2% for 2023, similar to Beijing’s targeted growth this year. “Most people think that is not the real growth number—it was actually a lot weaker,” she said.
Correction, March 5, 2024: An earlier version of this article misstated Sharmin Mossavar-Rahmani’s title.
