China 5% growth target for 2023 and 2024/25?

The departing prime minister has unveiled a GDP growth target of around 5% for 2023 against market expectations of just above 5%. One reason for the cautious growth target is that the authorities do not want to overstimulate China’s economy. A 5.5% target would require additional policy stimulus and the mood at the national party congress (NPC) is not in this direction. China is happy to provide modest fiscal stimulus and sustain easy monetary policy for now, but remains concerned about the long-term high debt/GDP trajectory in the economy. For example, it was interesting that Li Keqiang warned against disorderly expansion in the property sector.

A 2^nd key reason for the target around 5% is likely to be the 2024 and 2025 growth outlook. Chinese authorities already know that GDP growth will likely exceed 5%, given the swift reopening and the lack of a 2^nd major COVID wave that they had feared. We forecast 5.8% for 2023 (here). 2024 should also exceed 5% and we forecast 5.5%, but momentum in H2 2024 will likely dip below 5% as the cyclical bounce from reopening fades and the structural headwinds kick in. We remain concerned that the authorities are not doing enough to effectively lift productivity growth long-term, especially at a time when labor force growth is stopping due to population peaking. Additionally, Chinese authorities remain wary about stimulating for too long in case it brings total non-financial debt/GDP too high and then cause a Japan style debt slump. Thus, an around 5% growth forecast for 2023 can be followed by around 5% for 2024 and 2025.

The NPC carries onto until March 13 and the main focus remains the appointments for premier minister and other key positions at the People's Bank of China (PBOC). Reports suggest that Xi loyalists are likely to take key positions, which reflects a desire to control key economic decisions in the economy.