China sets an economic growth target of around 5% but acknowledges it will not be easy to achieve

China aims to achieve 5% economic growth this year, Premier Li Qiang said Tuesday, acknowledging that it will be a challenging goal in difficult times.

In his address to the annual session of the National People’s Congress, Li outlined plans to boost spending on developing advanced technology, fortifying China’s military and supporting the economy, among many other longstanding goals. But there was no big package of stimulus to help boost markets and reassure worried investors.

Li, presenting an annual report on the past year and future plans, said the government would continue with a “pro-active fiscal policy and prudent monetary policy,” suggesting no major change in the leadership’s approach to the economy.

He did unveil a plan to boost growth by issuing long-term bonds over the next several years, starting with 1 trillion yuan (about $139 billion) this year. The money would be spent to implement “major national strategies” and fortify security “in key areas.”

Li said the government plans a “new development model” for the housing market, including building government-subsidized housing in a bid to ease a prolonged real estate slump that has been a major drag on the economy. That appeared to confirm reports that authorities plan to use public funds to buy up some of China’s legions of unoccupied apartments and turn them into affordable housing.

“The foundation for China’s sustained economic recovery is not yet stable, with insufficient effective demand, overcapacity in some industries, weak social expectations, and still many risks and hidden dangers,” Li told delegates to the annual session of the congress, China’s ceremonial legislature, in Beijing’s majestic Great Hall of the People, adjacent to Tiananmen Square.

The government released a draft budget that included 1.67 trillion yuan ($231 billion) in defense spending — a rise of 7.2% that matches the pace of increase in 2023 and reflects a continued focus on security as well as the economy.

China’s economy grew at a 5.2% pace last year, but that was on top of just 3% annual growth rate in 2022, when millions of people were locked down for weeks and some businesses were ordered to close as the country endured the worst disruptions from the Covid-19 pandemic. Replicating the same growth rate this year will be more difficult, because the economy is starting from a higher base.

Initial reactions were skeptical, with Louise Loo of Oxford Economics saying they expect “potential growth likely closer to 4%.”

While 5% is a relatively ambitious target even for China, and would be extremely robust for the U.S. and other advanced economies, it’s much lower than the double-digit growth seen as the country’s economy was transformed into a manufacturing powerhouse.

“Achieving this year’s targets will not be easy,” Li said, referring not only to economic growth and other goals including raising incomes, creating 12 million jobs and making the economy more energy efficient in pursuit of climate goals.

China has set a 2.5% goal for reducing its energy consumption, after having failed to meet its target for a 2% cut in 2023.

Xi Jinping, China’s most powerful leader in decades, heads the party and has installed loyalists like Li in top posts to strengthen its grip on the economy and society. Xi, 70, is in his third five-year term as party general secretary and may hold that post for life.

The meetings of the national congress run for about a week and are China’s biggest political events of the year. The congress only endorses policies already set by top leaders, but it provides a platform to showcase the party’s accomplishments and to build support for its aims.

Leaders have been emphasizing the need to raise consumer spending to help drive the economy. But the consumption-led recovery it was counting on after anti-pandemic controls ended in late 2022 has faded and most forecasts are for growth to slow this year.

Falling housing prices and worries over jobs have left many families either reluctant or unable to spend more. China’s real estate market is in crisis after many developers defaulted on their debts following a crackdown on excess borrowing.

Li said the government would defuse such risks and provide support to local governments whose finances have been strained by high spending on anti-virus measures and lower tax revenues due to the downturn in land right sales.

China should not lose sight of “worst case scenarios,” Li said.

But he reiterated calls for greater confidence despite China’s challenges, noting the country’s vast market of about 1.4 billion people, its advanced manufacturing capacity and its massive workforce.

“The underlying trend of economic recovery and long-term growth remains unchanged and will not change,” he said. “So we must be more confident and more assured of ourselves.”

Among the dozens of projects Li listed in his roughly 30-page Chinese-language report — 55 pages in English — China plans a program this year for “worry-free consumption” to encourage people to spend more. Households will be encouraged to trade in old cars and appliances and buy new ones.

Li also said the government would focus on employment, a pressing concern for the many people whose jobs became more precarious during the pandemic and many young Chinese who are struggling to find work after leaving school. Plans include unemployment insurance and other social support, loans and subsidies to companies able to create many jobs.

The government also plans to provide support for local governments facing “economic difficulty,” he said, suggesting that Beijing will limit damage from debts of cash-strapped cities and regions that have been rising sharply.

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