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Deciphering China’s Unambitious Growth Targets

WHEN Chinese Governments often face a dilemma when setting annual economic growth targets. A balance must be struck between inspiring confidence and maintaining credibility. High goals can give entrepreneurs courage and make it easier to achieve rapid growth. But ambitious targets could also be missed, damaging the government’s reputation. (They could also induce reckless stimulus spending to avoid any such embarrassment.)

The government missed its target by a wide margin last year (see chart), largely due to the high cost of its efforts to stop covid-19. This year, it values ​​credibility over confidence. On March 5, outgoing Chinese premier Li Keqiang delivered his annual “work report” at the opening of the National People’s Congress. It revealed a growth target of “around 5%” for 2023.

That seems like a decent pace, roughly in line with China’s underlying “trend” growth rate. But the economy is generally expected to comfortably beat that trend this year, having fallen well below it last year. The target was lower than many external forecasts.Even if we meet, Chinese gross domestic product That would still be more than 2% below the expected path before the Omicron variant came out last year.

The government estimates that China will create about 12 million new urban jobs this year. This target is higher than last year’s (12 million versus “over 11 million”), although the growth target is not as high. The government may be hoping that China will see an unusually “job-filled” recovery as labour-intensive service industries such as retail and restaurants rebound from the restrictions that hit them particularly hard during the pandemic. It also expects employment to keep pace with the record 11.58 million students expected to graduate from universities and colleges in 2023.

The undemanding growth target removes any pressure to stimulate the economy further. Compared with last year, Li Keqiang’s report was less admonishing local governments to keep their economies going. Instead, he pointed to the need to prevent the accumulation of new debt. “Some local governments have significant budget imbalances,” he noted. This year they will be allowed to issue 380 million yuan ($550 billion) worth of “special” bonds (used to finance income-generating infrastructure projects). On the face of it, the quota is slightly higher than last year. But it may not feel like it in practice, as local government spending last year was backed by unusually large bond proceeds carried forward to 2021.

The report’s conservatism fits with the theme of this year’s congress: China’s rulers tighten their grip on the country. President Xi Jinping’s new economy team will have trusted aides and assistants. Li Qiang, the party’s number two, is expected to succeed Li Keqiang as premier. He Lifeng, who worked with Xi in Fujian (and attended his second wedding), is likely to become vice premier in charge of economic policy. He may also serve as party secretary of the central bank. If so, he will oversee the bank’s new president, likely to be Zhu Hexin, a commercial banker and former vice-governor of Sichuan province.

Mr Li’s report offered little guidance on what tighter controls would mean in practice. Like previous editions, the document is theological boilerplate (“Hold high the great banner of socialism with Chinese characteristics”), policy platitudes (“We should increase the strength and effectiveness of proactive fiscal policy”) and technocratic facts (“China’s five-year Roads have increased by 30%, and drainage pipes have increased by more than 40%).

The most striking novelty of this year’s report is its nostalgia. Last year’s edition flipped from the past to the present on page eight (the English translation). This year, Mr Lee didn’t put the past behind him until page 31, and then devoted just four pages to discussing priorities for 2023. Maybe he finds it hard to talk about the future because he won’t have any role in shaping it.

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