Setting the Tone for 2023: A Steady Growth Target AmidGlobal Turmoil
China has set its economic growth target at "around 5 per cent" for 2024, marking the third consecutive year it has aimed for this target, according to the annual work report prepared by Chinese Premier Li Qiang for the upcoming Two Sessions. This decision comes as the world’s second-largest economy navigates a complex landscape of external and domestic challenges. In 2024, China’s economy expanded by 5 per cent, with its gross domestic product (GDP) reaching a record 134.9 trillion yuan (US$18.77 trillion). While maintaining the same growth target since 2023, achieving this goal in 2024 will require careful maneuvering to address both global uncertainties and internal pressures.
The global economic environment remains fraught with risks, particularly the escalating trade tensions between China and the United States. The U.S. recently doubled tariffs on Chinese goods to 20 per cent, effective March 4, 2024, prompting Beijing to retaliate with additional tariffs of up to 15 per cent on American agricultural and food products starting March 10. These measures follow earlier tariffs imposed on U.S. coal and liquefied natural gas. The tit-for-tat trade actions underscore the increasingly fraught relationship between the two economic giants, creating significant headwinds for China’s export-oriented economy.
Domestically, China faces a multitude of challenges, including sluggish domestic demand, a prolonged property sector crisis, an aging population, and rising youth unemployment. These issues threaten to undermine the country’s growth momentum and are forcing policymakers to adopt a cautious yet realistic approach to economic management. Analysts view the "around 5 per cent" growth target as a signal of Beijing’s confidence in stabilizing the economy, even as global uncertainties loom large.
A Slowing Economy and the Shift in Consumer Demand
Reflecting weak consumer demand, China has lowered its consumer price index (CPI) target to around 2 per cent for 2024, down from 3 per cent in the previous year. This marks the first time the CPI target has been set below 3 per cent since it was first specified in the annual work report over 20 years ago. The adjustment comes after China’s CPI, a key indicator of inflation, rose by only 0.2 per cent in both 2023 and 2024—the lowest increase since 2009.
This significant shift in the CPI target highlights Beijing’s recognition of the tepid state of consumer spending. Dr. Lizzi C. Lee, a fellow on the Chinese economy at the Asia Society Policy Institute’s Center for China Analysis, noted, "Lower CPI targets suggest Beijing is not expecting a sharp rebound in consumer spending anytime soon." This sentiment reflects the broader concern that domestic demand remains lackluster, posing a significant challenge to China’s economic recovery.
To counteract these challenges, the Chinese government has announced a budget deficit of around 4 per cent of GDP for 2024, the highest level in over three decades. This significant fiscal expansion signals a clear shift in policy priorities, with a greater emphasis on supporting households and boosting consumer spending. Observers interpret this move as an effort to cushion the impact of potential drops in tariff-sensitive exports, which are increasingly vulnerable to external trade disruptions.
Navigating Domestic and External Pressures
China’s domestic economy is grappling with multiple structural issues that are pressuring growth. The property sector, once a key driver of the economy, remains mired in crisis, with many developers struggling with debt and stalled projects. At the same time, the country’s rapidly aging population and rising youth unemployment are raising concerns about long-term economic vitality. These challenges are compounded by sluggish consumer demand, which has been slow to recover despite government stimulus measures.
Externally, the escalating trade war with the United States presents a significant threat to China’s export-oriented economy. The U.S. decision to double tariffs on Chinese goods to 20 per cent has been met with retaliatory measures from Beijing, including higher tariffs on American agricultural and food products, as well as energy exports. While these measures are intended to protect domestic industries, they also risk further destabilizing global trade relations and exacerbating economic uncertainty.
Analysts describe China’s "around 5 per cent" growth target as both realistic and cautious, reflecting a pragmatic approach to economic management. Given the prevailing global and domestic challenges, this target acknowledges the difficulties of achieving higher growth while signaling Beijing’s determination to maintain economic stability. At the same time, the lower CPI target and expanded budget deficit indicate a shift in policy focus toward supporting households and stimulating domestic demand.
Expert Insights and Policy Adjustments
Dr. Lee further emphasized that the lower CPI target reflects Beijing’s acknowledgement of the weak consumer sentiment that has persisted in recent years. "Consumers in China have been cautious about spending, partly due to uncertainty over the economic outlook and the impact of the property market downturn," she explained. This cautious approach to spending is echoed in the broader economic data, with private consumption growth remaining subdued despite government efforts to stimulate demand through tax cuts and other measures.
The decision to set a higher budget deficit—4 per cent of GDP—also marks a significant departure from previous fiscal policy. This move suggests that Beijing is willing to embrace a more expansionary fiscal stance to support economic growth, particularly in the face of external headwinds. Observers believe that this additional fiscal space will be used to fund measures aimed at boosting household incomes, reducing burdens on businesses, and investing in infrastructure projects to drive growth.
However, the higher deficit also raises questions about the sustainability of China’s fiscal policy in the long term. While the immediate focus is on stabilizing the economy, policymakers will need to carefully balance the need for stimulus with the risk of rising debt levels. This delicate balancing act will be critical to ensuring that China’s economic recovery remains on track without creating new vulnerabilities.
Looking Ahead: Implications for 2025 and Beyond
As China navigates the complexities of 2024, the implications for the coming year and beyond remain uncertain. The ongoing trade tensions with the United States, coupled with domestic economic challenges, will continue to shape the policy landscape. The lower CPI target and higher budget deficit signal a shift toward a more supportive fiscal policy, but the effectiveness of these measures will depend on their implementation and impact on consumer and business confidence.
Looking ahead to 2025, the key will be whether China can achieve its growth target while laying the groundwork for more sustainable and inclusive economic growth. Addressing the structural issues in the property sector, tackling the aging population, and creating opportunities for young workers will be critical to ensuring long-term economic stability. At the same time, managing the risks associated with the escalating trade war and navigating the uncertain global economic environment will require deft policy decisions and international engagement.
In the near term, the focus will be on supporting households and businesses through targeted fiscal and monetary measures. By prioritizing domestic demand and addressing immediate challenges, Beijing aims to create a more resilient economic foundation that can weather both internal and external shocks. While the path ahead is fraught with challenges, the "around 5 per cent" growth target and associated policy adjustments demonstrate Beijing’s commitment to stabilizing the economy and securing a steady path forward.
