Market reaction to China’s 2024 economic targets

© Reuters. People look at the skyline of the central business district (CBD), on the day of the opening session of the National People’s Congress (NPC), during a hazy day in Beijing, China, March 5, 2021. REUTERS/Thomas Peter/ File Photo

SINGAPORE (Reuters) -China has set its 2024 growth target for the economy at about 5%, similar to last year’s, according to an official work report seen by Reuters on Tuesday.

The National People’s Congress (NPC), kicked off its annual session on Tuesday, with plans to contain the 2024 fiscal budget deficit at 3% of gross domestic product (GDP).

COMMENTS

ROCKY FAN, ECONOMIST AT GUOLIAN SECURITIES, SHANGHAI

“I think this target is in line with expectations. Of course, there are still challenges to reach this goal, as there’s no more low-base effect, and there’s still a big drag from the property sector.

Personally, I’m optimistic, as China is similar to countries other than Japan that can walk out of a cyclical recession. China is strong in capital expenditure, and macro data has started to improve in the first quarter, including total social financing, PMI, Spring Festival spending.

And since the second half of last year, corporate profit has started to improve and capex spending has been strong.”

HU YUEXIAO, CHIEF ECONOMIST AT SHANGHAI SECURITIES, SHANGHAI

“This growth target reflects policy makers’ intention to stabilise the economy, and is attainable.

China’s policy focus has shifted to structural reforms. The pursuit of speed has given way to the change in the model of growth. The shift is reflected in new terms such as ‘new productive forces’.”

TOMMY XIE, HEAD OF GREATER CHINA RESEARCH, OCBC BANK, SINGAPORE

“It looks like the target was quite in line with the expectations.

“But, of course, the other thing is the fiscal deficit targets.. I think this target is quite interesting that in the past few months the target has been brought down gradually, because if you can recall maybe one to two months ago markets were discussing whether China can set a higher fiscal deficit target, which means above 3%.

So I think from that perspective, it means China is unlikely to do a big bazooka-style kind of the stimulus, I think there are still a lot of constraints at the moment in terms of how China can support the economy via fiscal expenditure. But having said that, I think there’s still a lot of room. China can play around with the special bonds, etc. Last year, China announced an additional 1 trillion fiscal special bonds and this money has not really been spent, and quite a lot of money will carry over to this year.”

MOH SIONG SIM, CURRENCY STRATEGIST, BANK OF SINGAPORE, SINGAPORE

“I did expect the sort of target as 5% … but they’ll need to be accompanied by more policy support to achieve that goal.

Given that we have falling land sales and the pullback of the local government borrowing the central government needs to step up the fiscal deficit to achieve that 5% growth target. Also in light of the latest news on the property sector they probably need to step up some of the easing measures there as well.”

ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE

“Such a target would signal Beijing’s willingness to push more stimulus because the loss of economic momentum in Q2 through Q4 2024 means the year over year comparison is becoming more difficult.”

CHI LO, SENIOR MARKET STRATEGIST, ASIA PACIFIC, BNP PARIBAS ASSET MANAGEMENT, HONG KONG

“Beijing is trying to manage market expectations on China’s outlook by setting a 5% growth target. It is a realistic target if the authorities can continue the assertive easing measures for longer.

“From a macroeconomic policy perspective, to counter the deflation risk so that structural reforms and debt reduction can proceed, Beijing needs to pump-prime the system by aggressive easing to protect economic growth with determination during China’s structural transformation, or ‘creative destruction’, process which old industries are being destroyed while new industries are being created.”

TAO CHUAN, CHIEF MACRO ANALYST AT SOOCHOW SECURITIES, BEIJING

“It’s more difficult to achieve 5% this year than last year because the base number has become higher, indicating that the top leaders are committed to supporting economic growth.

Real estate investment will continue to be a drag on GDP. The growth has to be driven by consumption, so we expect more measures to be announced to boost consumption. What is more important this year is whether the nominal GDP can be higher than real GDP, which could reflect whether China’s economic recovery is backed by market prices.”

TIANCHEN XU, ECONOMIST, ECONOMIST INTELLIGENCE UNIT, BEIJING

“The growth target is quite challenging, and implies a high level of public investment. That means a 3% deficit is not the full picture of the fiscal story, and China will likely ramp up growth with other financial tools.”

LYNN SONG, ING CHIEF CHINA ECONOMIST

“Achieving this target will likely require more supportive policies to be released throughout the year. In particular, it will be more difficult for consumption to drive growth to 5% again, and trade is also unlikely to be a major driver of GDP growth this year given an expected slowdown in the external environment and the possibility of new trade barriers. As such, we think investment will be leaned on if we are to achieve the around 5% target this year.

“While a modest uptick in the special government bond issuance target sends a favourable signal, the unchanged budget deficit to GDP target at 3% indicates that the government may still be focused on fiscal sustainability. While this target does not necessarily preclude the government from unleashing stimulus, it confirmed that no bazooka stimulus package is in the works.”