Chinese authorities have set a GDP target of 5% for 2024

Chinese Prime Minister Li Qiang at the National People’s Congress outlined the official target for the country’s GDP growth for 2024 – 5%. The authorities expected the same growth in 2023 (in the end it turned out a little more – 5.2%). However, this time it will be more difficult to fulfill the plan: the post-Covid impulse of recovery growth has actually exhausted itself. The Prime Minister’s report showed that reforms to solve the systemic problems of the Chinese economy, including in the real estate market, are not yet expected. Most of the announced initiatives will center around China’s pursuit of technological sovereignty goals.

The statements made by Chinese Prime Minister Li Qiang on March 5 at the National People’s Congress (the highest legislative body) were addressed not so much internally to the country as externally and essentially represented an attempt to restore confidence in the Chinese economy. The prime minister insisted that the trend towards its active restoration “has already begun.” In fact, in 2023, China actually managed to exceed its GDP growth target: the economy grew not by 5%, but by 5.2%. However, this is largely due to the low base effect: in 2022, Chinese authorities continued to introduce lockdowns to combat the spread of COVID-19.

The official target for 2024, which the Prime Minister outlined yesterday, is to return to 5% GDP growth. The indicator looks ambitious, including due to the fact that the post-Covid recovery impulse has exhausted itself in the first half of 2023. Statistical data and the values ​​of leading indicators do not inspire optimism in the authorities at the moment. Thus, the industrial PMI indicator remained below the 50 point mark that separates business activity growth from contraction in February: 49.1 points after 49.2 in January. The subindex of export orders is going deeper and deeper into negative territory – 46.3 points after January’s 47.2. The continuing decline in domestic demand also raises concerns. According to the National Bureau of Statistics, China experienced deflation for the fourth month in a row in January. The inflation target for this year, as for last year, is 3% (actually at the end of 2023 – 0.2%).

Li Qiang, although he acknowledged the seriousness of systemic problems, including in the Chinese real estate market, did not offer specific solutions to them and limited himself to statements of a general nature: about the need to change the Chinese development model and the importance of stimulating domestic demand.

It follows from the Prime Minister’s speech that the attention of the authorities and financial support in the coming years will be concentrated around those who will help the country achieve the goals of technological sovereignty. In fact, this is a response to expanding US trade restrictions. It is the intensified confrontation with Washington that explains the announced increase in subsidies for science. In particular, R&D expenses in 2024 could grow by 10%, to 370.8 billion yuan ($51.5 billion).

It is proposed to additionally stimulate the production of high-tech products in China by attracting foreign capital: for this, the authorities want to facilitate investors’ access to certain sectors of the economy. The decline in the influx of direct investment into China, recorded last year, apparently turned out to be very sensitive for Beijing: the Chinese authorities cannot count on investment activity within the country.

Attracting foreign investors, including from Europe, can, among other things, improve the quality and competitiveness of Chinese products. These goals are also met by the fact that the PRC actually encourages the relocation of European companies in exchange for lower taxes and cheap labor. The proximity to such companies and the opportunities this creates for borrowing technologies can stimulate the modernization of Chinese production.

Kristina Borovikova