[Preview of China Trade Fair] Eyes on Economic Growth Rate... Will There Be a Bold Stimulus Card?

New 3 Major Industries Focused 5% Growth Target
Actual Growth Potential Expected to Be Limited

The upcoming China Two Sessions (National People's Congress and Chinese People's Political Consultative Conference), set to open next week, is the largest political event in the country where the top leadership's economic and foreign policy directions for this year can be gauged. Especially as the base effects related to COVID-19 have ended, there is keen domestic and international interest in the level of economic growth targeted. Amid ongoing concerns about economic stagnation and persistent US-China tensions, attention is focused on whether any bold stimulus measures will be introduced.

The Two Sessions refer to the National People's Congress (NPC), which is equivalent to the National Assembly in South Korea, and the Chinese People's Political Consultative Conference (CPPCC), the country's top policy advisory body. The CPPCC opens on the 4th, followed by the NPC convening at the Great Hall of the People in Beijing on the 5th. The closing date has not been clearly announced but is expected to last about ten days. Pu Weigang, Executive Director of the Shanghai Financial and Legal Research Institute, told the Hong Kong South China Morning Post (SCMP), "The Two Sessions are a good opportunity for China to concretely outline a clear roadmap and systematically show domestic and foreign companies what it plans to do."

Likely to Set Growth Target in the 5% Range Centered on the 'New Three Major' Industries

The most anticipated event at the Two Sessions is Premier Li Chang's government work report delivered at the NPC opening ceremony. This is where the government's economic growth target for the year will be revealed for the first time. This figure can be roughly estimated from the growth targets set in previous local government work reports, where the weighted average of targets from 31 local governments is 5.3%, down 0.3 percentage points from last year's 5.6%.

Considering that from 2018 to 2023 (excluding 2020), the central government's GDP growth targets were consistently 0.6 percentage points lower than the weighted average of local governments, this year's target may fall below 5.0%. However, government targets have generally been set equal to the growth rates of the top four provinces by GDP size (Guangdong, Jiangsu, Shandong, Zhejiang) and the two regions with the highest per capita GDP, Beijing and Shanghai. Except for Shandong (5.5%), the other five local governments set a 5.0% growth target, and China's leading think tank, the Chinese Academy of Social Sciences, also forecasted 5.3% growth this year.

Considering internal trends and circumstances, the Chinese government's target is expected to exceed 5.0% this year. This is especially likely given the new policy stance of "prioritizing growth first" (xian li hou fa) announced at the economic work conference last December. The focus is expected to be on the so-called 'New Three Major' industries?electric vehicles, lithium batteries, and solar cells?promoting a 'new quality productive force.'

However, there are already pessimistic views about the feasibility of achieving this target due to limited growth potential in these sectors. Although China has already secured a dominant position in the electric vehicle and solar panel markets, concerns about overinvestment and oversupply are growing. Domestic sales growth of electric vehicles has started to decline, and Europe has begun defensive measures including tariffs against the influx of low-priced Chinese electric vehicles. Industry voices report that the average price of solar panels is less than half of last year's level due to oversupply.

Attention is also focused on the fiscal deficit ratio to GDP, which can indicate fiscal policy direction. Last year, the Two Sessions set this ratio at 3%, but it was raised to 3.8% at the NPC Standing Committee meeting in October. The market expects this year's ratio to be around 3.5%, but if it exceeds 4.0%, it could signal a more aggressive fiscal stimulus.

Local Debt Remains... Bold Stimulus Measures Are Limited

Additionally, the market is watching closely to see the extent of stimulus measures for the sluggish asset market. Earlier, the central bank, the People's Bank of China, cut the 5-year Loan Prime Rate (LPR) by 0.25 percentage points, bringing mortgage rates into the 3% range (3.95%) for the first time. There is speculation that further rate cuts, easing or removal of real estate purchase restrictions, and expanded housing subsidies including tax benefits may be announced.

There is also interest in whether measures to revitalize the plummeting Chinese stock market will be proposed. Expectations include liquidity support, easing restrictions on foreign investment, support for private enterprises, and policies to enhance the value of state-owned enterprises.

However, given the heightened risks of debt restructuring accumulated since the 2008 financial crisis, government intervention is expected to be limited. Moreover, since the beginning of this month, commercial banks have extended loans totaling 29.43 billion yuan (approximately 5.4469 trillion won) to real estate companies in just 20 days, indicating a growing debt burden. Meanwhile, housing sales in 30 major cities fell 37.5% year-on-year in January and February, continuing a weak trend. The chronic oversupply accumulated since the 1998 housing privatization and declining consumer confidence make improvement difficult without bold government measures.

Furthermore, it is anticipated that Liu Jianchao, head of the Communist Party's International Liaison Department, will be appointed as the successor to former Foreign Minister Qin Gang, who officially resigned from his NPC delegate position. Liu has recently expanded his activities, including successive meetings with US Secretary of State Antony Blinken. Additionally, the Two Sessions are expected to bring public discussion on the complete abolition of birth restrictions and expanded childbirth support benefits, addressing the low birthrate issue identified as a factor in China's medium- to long-term economic slowdown.

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