Chinese leaders on Saturday announced a 2022 GDP growth target that was the lowest in 30 years and yet still higher than most analysts expected.
At the country’s largest annual legislative rally, Premier Li Keqiang said China’s economy is expected to grow “about 5.5 percent” this year. This is in the upper range of most economists’ forecasts, and well above the expectations of the World Bank and the International Monetary Fund.
Experts agreed not only that the target was ambitious, but that it would rely on debt spending, infrastructure projects and support for the beleaguered real estate sector.
“Beijing set such a high target mainly because it’s a politically important year and because of unemployment concerns. Many analysts doubt they can achieve it, but I think Beijing still has the ability to leverage to achieve GDP growth rates of over 6% if they choose,” said Michael Pettis, professor of finance at Peking University. Barrons.
Pettis said the sources of growth “would not increase the real capacity of the economy to produce goods and services in any significant way” and would overlook “high quality” growth in areas such as consumption, trade surplus and business investment.
Last year, China’s economy grew 8.1% as it was based on a weak baseline from the pandemic-ridden year earlier. But in the fourth quarter of 2021, the economy grew only 4% and the issues that held back growth remain, analysts said.
“It will be difficult to find a balance between supporting growth and preventing a further build-up of systemic risk,” said Tuuli McCully, director of Asia-Pacific economics at Scotiabank. Barrons. She called the GDP target “ambitious” and said it “implies that China’s monetary and fiscal policies need to become more growth-friendly.”
Premier Li highlighted other areas that policymakers said mattered most, including jobs, the budget deficit, inflation and local government bonds. The surveyed urban unemployment rate is expected to remain below 5.5% – the same as last year – with a target of creating more than 11 million urban jobs, Li said. should not exceed 3%.
Politics hovered around most announced economic policies. “China’s policymaking in 2022 will focus on maintaining economic stability. This is especially important this year because the National Congress of the Communist Party will be held in the fall,” McCully said. At this congress, President Xi Jinping should obtain a third term of 5 years, a long term unprecedented in the post-Mao Zedong era.
Premier Li said, “In our work this year, we must make economic stability our top priority and pursue progress while ensuring stability.” In an official summary of Li’s speech, “stability” was mentioned more than 30 times.
Another focus of the work report was local government bond quotas, which feed into projects such as infrastructure. Li said that amount would be set at 3.65 trillion yuan ($580 billion), unchanged from last year.
“To give an idea of its level, the quota was 2.15 trillion yuan in 2019,” Pettis said. “Add further planned spending on local government infrastructure, the expansion of the national rail and transportation systems, and a partial revival of the real estate sector, and China’s debt-to-GDP ratio this year will rise by at least 3 to 5 percentage points and probably Suite.”
Political issues such as Russia’s invasion of Ukraine and China-US relations were notably absent from Li’s speech. as well as the fierce crackdown on a range of industries, from technology to education to insurance, has also been left out.
The rally is expected to last another four days, with lawmakers meeting in small groups to consider the prime minister’s proposals, which have traditionally always been ratified.