National People's Congress: China sets ambitious economic goals for 2024

China has outlined a series of measures aimed at boosting its struggling economy and set an ambitious growth target of around 5% this year.

Premier Li Qiang made the announcement on Tuesday at the opening of the annual National People's Congress (NPC).

Mr. Li acknowledged that China's economic situation faces “difficulties,” adding that many of them “have not yet been resolved.”

This comes as China struggles to revitalize its once booming economy.

“Risks and potential dangers in real estate, local government debt, and small and medium-sized financial institutions were severe in some regions,” he said. “Under these circumstances, we faced even more dilemmas in making policy decisions and conducting our operations.”

A series of other measures to tackle the slow recovery from the pandemic was also announced, including the rollout of new initiatives to tackle problems in the country's crisis-hit real estate sector. The Chinese government also aims to add 12 million jobs in urban areas.

Premier Li said financial market regulation would also be strengthened, while research into new technologies such as artificial intelligence (AI) and life sciences would also be stepped up.

In addition to economic stimulus measures, defense spending will be increased by 7.2% this year.

Beijing's defense budget is being closely monitored by neighboring countries and the United States as tensions over Taiwan remain high.

China's economy has expanded at an impressive rate for decades, with gross domestic product (GDP) growing at an average annual rate of nearly 10%, according to official statistics.

Along the way, it overtook Japan to become the world's second-largest economy, and the Chinese government claims to have lifted hundreds of millions of people out of poverty.

According to the Chinese government, the economic growth rate last year was 5.2%, which is still low for China. But some critics say the real number may be less than a third of that.

“The next five to 10 years are going to be difficult,” Andrew Collier, managing director at China research firm Orient Capital Research, told the BBC.

“Many economists think this is a complete fabrication. The idea of ​​5.2% or 5.5% growth is likely wrong. It's more like 1% or 2%.” he added.

Regardless of which numbers are accurate, it is clear that this vast country and its leaders face a number of difficult economic challenges.

The list includes a real estate market in crisis, a volatile stock market, high youth unemployment, and the threat of deflation as consumer prices continue to fall.

These immediate issues are compounded by long-term issues ranging from trade and geopolitical tensions to China's declining birth rate and aging population.

One of the most serious of these challenges relates to the housing market, which accounts for approximately 20% of the economy, according to the International Monetary Fund (IMF).

Dan Wang, chief economist at Hang Seng Bank (China), said this is “a big problem not only for real estate developers but also for local banks, which are highly exposed to this problem.”

And while many other countries around the world have struggled with post-pandemic price increases, China has been one of the few major economies to avoid high inflation.

But now they have to deal with the opposite problem: persistent price declines and deflation.

China's consumer prices fell in January at the fastest pace in about 15 years, marking the fourth consecutive month of decline.

This was the sharpest decline since September 2009, when the global economy was still reeling from the effects of the global financial crisis.

Deflation is bad for the economy because it means people keep putting off buying big-ticket items like washing machines and cars in the hope that they will be cheaper in the future.

It also affects people and businesses that are in debt. Prices and income may fall, but debt will not. Debt payments become an even greater burden for businesses and households whose incomes are decreasing.

All of this means that China lacks what is essential for a strong economy: self-confidence. And authorities are scrambling to reassure investors and consumers.

Fidelity International's Catherine Yong told the BBC: “The message from policymakers continues to be about confidence and a recovery in domestic demand.”

So far, this has meant a series of relatively small measures targeting different parts of the economy.

This year alone, borrowing costs were reduced and direct support was provided to developers, among other measures to address the real estate crisis.

In a shock move earlier this month, the head of China's stock market regulator was replaced, indicating the government is prepared to take strong measures to halt an $8 trillion stock market crash. It was seen as something.

Authorities also moved to crack down on traders who bet on the stocks of Chinese companies, imposing new rules on stock sales at the beginning and end of the trading day.

Beyond these immediate problems, China also faces a number of broader challenges, including slowing productivity growth and an aging population.

“The population is aging rapidly due to the one-child policy, and the demographics are quite unfavorable,” said Chen Wang, chief Asia-Pacific economist at investment firm Vanguard.

“Unlike Japan, which got rich before it got old, China is getting old before it gets rich,” she added.

Taiwan also has seemingly intractable geopolitical problems.

The Chinese government views autonomous Taiwan as a separate province that will eventually become part of China, and has not ruled out the possibility of using force to achieve this goal. However, Taiwan views itself as distinct from mainland China.

Taiwan has become an important flashpoint in the struggle between China and the United States for supremacy in Asia.

This will, at the very least, greatly complicate China's relations with the United States and many other major Western economies.

There is also the ongoing trade conflict with the United States. The trade tensions began in 2018 under then-President Donald Trump and show no signs of easing even with the Biden administration.

There is a good chance that tensions between the United States and China will increase if Mr. Trump becomes president for a second term.

Trump has made characteristically hawkish comments about China, saying he intends to impose additional tariffs on Chinese goods if he wins the US presidential election in November.

“We have to do it,” he said in an interview with Fox News, saying tariffs could exceed 60%.

While this may get a lot of headlines, financial markets may be able to take this in stride, Yong suggests.

“Most of this negative news is already factored into the stock's valuation,” he said.

It remains to be seen whether Mr. Xi's long-term plans for China will turn around the country's fortunes.

But what is clear is that the country's population of over 1.4 billion is unlikely to see a return to double-digit annual growth rates and the prosperity that comes with it anytime soon.