March 7, 2024
Unpacking China’s 2024 growth target and economic agenda
At the opening of China’s fourteenth National People’s Congress (NPC) on March 5th 2024, Premier Li Quang delivered his first Government Work Report, setting the key economic and social policies and targets for this year. The NPC meeting will be followed by that of the National Committee of the Chinese People’s Political Consultative Conference. Together those meetings constitute the “Two Sessions”—an important annual event where political and policy decisions made earlier by the Politburo of the Chinese Communist Party (CCP) are formally endorsed and publicly announced.
Economic targets for 2024
The 2024 Government Work Report sets this year’s economic targets, which are virtually identical to those made in 2023. GDP growth is planned to be “around 5 percent”, with a central government budget deficit of 3 percent of GDP in continuation of a proactive fiscal policy and a prudent monetary policy. In particular, China plans to issue one trillion yuan of ultra-long special government bonds to support the budget; and to raise the special local government bond quota to 3.9 trillion yuan from 3.8 trillion yuan in 2023. The urban unemployment rate is set at around 5.5 percent with twelve million new jobs to be created.
More interesting than the targets are the government‘s priorities as reflected in the increases in spending. Total central government expenditure is projected to increase by 3.8 percent to 28.5 trillion yuan (almost $4 trillion), with debt interest payments topping the list rising by 11.9 percent; followed by science and technology at 10 percent; stockpiling of grains, edible oils, and other necessities at 8.1 percent; national defense at 7.2 percent (same as last year); diplomatic activities at 6.6 percent; and education at 5 percent.
The planned fiscal deficit at 3 percent of GDP—declining from the realized deficit of 3.8 percent in 2023—along side the commitment to“prudent” monetary policy have disappointed many analysts and financial market participants who had hoped for a “big bazooka” stimulus plan to kick start the lackluster economy. Furthermore, they point out that this year will not benefit from the base effect resulting from earlier slow growth due to Covid-19. As a consequence, most analysts are keeping their estimates for 2024 growth below 5 percent, with the IMF expecting 4.6 percent.
The key factor in this year’s growth prospects is whether the property sector starts to stabilize, having been in a sharp decline over the past three years. In particular, after suffering the worst price fall in nine years—a drop in investment of 9.6 percent and in new construction starts of 20.4 percent in 2023—home sales and prices have increased modestly in recent months. If this trend gains traction, it would set the stage for the series of moderate support measures implemented so far to show some positive results. In this context, it is interesting to note that Rhodium Group, which had estimated actual 2023 growth to be 1.5 percent instead of the official 5.2 percent, has expected a cyclical recovery to 3.5 percent in 2024.
Developing the “New Three” for high-quality growth
In any event, more important than the exact GDP growth estimates is the NPC’s endorsement of the decisions made earlier by the CCP Politburo. These decisions reflect Xi Jinping’s emphasis on developing new quality productive forces, through strengthening capability in science and technology to form the foundation for high-quality growth. This has emerged as Xi’s main strategy to develop a new engine of growth for China. It is also a way to stay competitive with the West in science and technology, not the least to sustain the modernization of the Chinese military.
New quality productive forces refer to new clean energy technologies and products—dubbed the “New Three” by the Energy Intelligence Group. These include electric vehicles (EVs), lithium ion batteries, and renewable energy products such as solar panels, wind turbines, storage facilities and other infrastructures—all together accounting for 11 percent of China’s GDP. These sectors were targeted in the 2015 “Made in China” plan as well as the 14th Five Year Plan adopted in 2021. Last year, with state guidance and support, the New Three sectors have experienced a surge in investment of 6.3 trillion yuan ($890 billion)—40 percent higher year-on-year. According to Finland’s Center for Research on Energy and Clean Air (CREA), without that investment, China’s growth in 2023 might have been 3 percent instead of 5.2 percent. The Energy Intelligence Group has estimated that the new clean energy sectors will continue to grow, accounting for 18 percent of China’s GDP by 2027—in contrast to the property sector shrinking to a smaller but more sustainable 15 percent from its former peak of 25 percent of GDP.
Overcapacity problems
The problem with this approach is that it has created substantial overcapacity in those sectors, leading to a surge in export at low prices to Europe, the United States, and the rest of the world.
For example, China accounts for 75 to 96 percent of the global production of various components of solar panels but demands only 36.4 percent of the output. The rest has to be exported. And China’s export of EVs has increased by 1,500 percent in the past three years, helping China replace Japan as the largest exporter of automobiles. All together, exports of New Three products increased by almost 30 percent in 2023, exceeding one trillion yuan ($139 billion) for the first time.
Alarmed at the prospects of their markets being swamped with Chinese green energy products enjoying state support, the EU has started an anti-dumping investigation into EV imports with a possibility of imposing countervailing duties. The United States has opened an investigation into the data security risks of Chinese vehicles using “connected car technology”. China has reacted strongly to such moves, threatening retaliation. And China will try to export those products to countries in the Global South, many of which having no domestic manufacturing and would welcome competitively priced goods for their climate transition efforts.
In short, one of the biggest implications of the Government Work Report is that the development of clean energy industries has been identified as a strategic focus to promote high-quality growth—a new Xi catchword. The chosen strategy serves China’s strategic and economic interests but has created serious overcapacity problems, distorting world markets and raising trade tensions with the West. This adds another dimension to the geopolitical rivalry between China and the United States, making it more intractable and difficult to diffuse.
Hung Tran is a nonresident senior at the Atlantic Council’s Geoeconomics Center; a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund
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Image: Chinese Premier Li Qiang delivers the work report at the opening session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 5, 2024. REUTERS/Tingshu Wang