China's Economic Stimulus with Money Injection... The Concerns Behind the '5.5%' Target

Infrastructure Investment Ammunition of 5.4 Trillion Yuan This Year, 'Inflation' Is Key
Customized Two Sessions for Xi Jinping's Third Term ... Emphasizing Stability and Challenges

[Asia Economy Beijing=Special Correspondent Jo Young-shin] The Chinese government has equipped itself with 3.65 trillion yuan (approximately 703 trillion KRW) in ammunition for project financing (infrastructure investment) this year. This is at the same level as last year, but including the 1.7898 trillion yuan of local government bonds issued by various local governments in China last December, the funds used for infrastructure investment this year exceed 5.4 trillion yuan. This indicates that the Chinese economy is not doing well this year and that the government intends to stimulate the economy by injecting money.

[Image source=Yonhap News]

Through this, the Chinese government announced that it aims to achieve an economic growth target of "around 5.5%" this year. Premier Li Keqiang presented macroeconomic indicator targets such as a GDP growth rate of around 5.5%, creation of 11 million urban jobs, an urban unemployment rate of around 5.5%, and a price increase target of around 3% during the National People's Congress (NPC) work report held at the Great Hall of the People in Beijing on the 5th.

The concerns behind the "around 5.5%" target

Both inside and outside China, the dominant expectation was that the Chinese government would set the economic growth target at "above 5%" this year. Within China, the economy was broadly diagnosed in three ways: "below 5%", "above 5%", and "5.5%". A target below 5% implies a poor economy, while above 5.5% suggests a good economy.

Another important data point to consider is the scale of fixed asset (infrastructure) investment. An increase in infrastructure investment amount implies that the Chinese economy is not smooth. The "around 5.5%" target announced by Premier Li should be interpreted as a determination to boost the Chinese economy through economic stimulus. It means that the domestic and international situations surrounding the Chinese economy are not easy.

In fact, the Chinese government has allocated 3.65 trillion yuan for infrastructure investment this year. Including the 1.7898 trillion yuan of local government bonds issued by various local governments last December, the funds used for infrastructure investment this year exceed 5.4 trillion yuan.

It is also noteworthy that fiscal spending has increased. This year's fiscal deficit ratio is 2.8% of GDP. Although this is lower than last year's 3.2%, the situation is different in terms of amount. This year, the Chinese government's budget increased by 12.8% from the previous year to 13.4045 trillion yuan.

The problem is inflation. Western democratic countries such as the United States are already facing an inflation crisis due to quantitative easing measures to overcome COVID-19. The price defense line announced by the Chinese government this year is around 3%. Considering the Ukraine situation and others, it means money cannot be recklessly injected. Therefore, there is a high possibility that monetary policies centered on interest rate cuts and tax reductions will be actively used, and money will be injected depending on the situation. The increase in tax reductions this year to 2.5 trillion yuan, up 1.4 trillion yuan from last year, is in the same context. Of this, 1.5 trillion yuan will be returned through refunds. If inflation is not controlled, the sentiment of 1.4 billion people could be shaken.

[Image source=Yonhap News]

Customized Two Sessions ahead of the 20th Party Congress

The 20th Party Congress, which will decide Xi Jinping's third term, will be held as early as October or at the latest in November. The 20th Party Congress is a political event where President Xi will join the ranks of Mao Zedong and lay the foundation for long-term rule. This is why foreign media call the 20th Party Congress an emperor's coronation.

Chinese media have emphasized that President Xi has governed China well, citing economic growth that placed China among the major two countries (G2), COVID-19 response, the Xiaokang society (a moderately prosperous society where all people live affluent lives), and hosting the Beijing Winter Olympics. The year 2022 is the last gateway for long-term rule.

Premier Li mentioned the word "stability" 30 times and "challenge" 15 times in his work report, seemingly with the 20th Party Congress in mind. Stability refers to domestic stability through sustainable growth, and challenge refers to external stability considering US-China conflicts such as Taiwan. This can be read as justification and legitimacy for President Xi's third term.

The background for the announcement to create 11 million new jobs and control the urban unemployment rate within 5.5% is also here. Tax cuts are also a kind of public sentiment management. The 7% increase in defense spending is a response to external challenges such as US-China conflicts. Furthermore, policies presented at this year's Two Sessions, including emphasis on energy and food security and childcare allowance payments, are all evaluated as customized for the 20th Party Congress.

This content was produced with the assistance of AI translation services.