Could China miss its economic growth target in 2024?

Could China miss its economic growth target in 2024?

Could China miss its economic growth target in 2024?

President Xi Jinping may encounter challenges achieving Beijing’s economic growth target, despite the expected announcement of 5% growth at China’s upcoming annual parliamentary meetings.

China’s economic growth target for this year may prove to be a more formidable challenge as the annual meetings in Beijing commence on Monday. These meetings, known as the “two sessions,” bring together the National People’s Congress, China’s legislative body, and the Chinese People’s Political Consultative Conference, an advisory body.

Historically, these gatherings, spearheaded by Chinese President Xi Jinping, provided a forum for substantial policy declarations, encompassing the annual gross domestic product (GDP) growth objective. Leading up to this year’s two sessions, many analysts had anticipated that the world’s second-largest economy would set the goal at 5%, the same as last year.

China’s central bank, citing official data, has reported that the country surpassed its 2023 target with a 5.2% economic growth. In a recent report, the bank expressed optimism for further improvement and recovery in the economy in 2024.

However, experts argue that compared to last year, achieving or even meeting a 5% economic target will be much more challenging for China this year.

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Max J. Zenglein, the chief economist at the Mercator Institute for China Studies, stated to The Diplomat News that China’s economic growth in the previous year was derived from a relatively low starting point in 2022.

He mentioned, “This year, the starting point is slightly higher, which will pose challenges in achieving growth.”

By the end of 2022, the Chinese government had finally eased its strict COVID-19 restrictions and opened its market to foreign countries, even though most of the world had already transitioned into the post-pandemic era.

Wang Guo-Chen, a researcher from Taiwan’s Chung-Hua Institution for Economic Research, also suggested that since consumption had already rebounded last year after the reopening, there might be a slight decline in 2024.

Furthermore, many individuals remain pessimistic about China’s economic growth this year due to a weaker-than-expected recovery.

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International organizations predict that China’s GDP growth rate in 2024 will likely range between 4.5% and 4.9%, while the Chinese Academy of Social Sciences estimates a slightly higher range of 4.8% to 5%.

Reality indicates a more pessimistic economic forecast. Despite a GDP growth of over 5% last year, China is encountering various obstacles in maintaining economic stability, ranging from the indebted property sector to the threat of deflation due to weak domestic demand.

According to Xu Chenggang, a senior research scholar at the Stanford Center on China’s Economy and Institutions, the official data released by the Chinese Communist Party often fails to accurately portray the true state of affairs.

Xu stated, “In reality, the growth rate in 2022 was negative, and in 2023, it was less than 1%,” based on his observations of various industries in recent years.

Upon closer examination of the numbers, Xu cited examples from key sectors. Despite the robust revenue performance of industries like electric vehicles, lithium batteries, and solar panels, they collectively contribute only 8% to China’s GDP.

Conversely, Xu highlighted that the majority of sectors, including real estate, which makes up approximately one-third of the GDP, have witnessed a decline.

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The underperformance of the economy is also apparent at a regional level. As reported by Reuters, a minimum of 15 out of 31 provincial economies failed to meet their 2023 targets. In terms of GDP growth objectives for 2024, only five out of 27 local governments in China aimed for higher goals compared to 2023.

Given the lack of trust in China’s official economic data, many view the 5% growth target for 2024 as having more symbolic significance rather than a stimulating effect on the economy.

Liu Wan-Hsin, a senior researcher at the Kiel Institute for the World Economy, stated, “It would serve as a symbolic indication that the Chinese economy is not in dire straits and that the Chinese government is capable of addressing economic challenges.”

Xi seeks to find equilibrium between conflicting elements

Xi strives to find a middle ground between conflicting elements. In the midst of economic challenges, attention is now focused on the potential policies that Beijing may unveil during the two sessions. However, experts are skeptical that there will be any drastic actions, as these meetings are generally seen as ceremonial events.

According to Xu, the two sessions have never carried significant weight, with major decisions typically being made by the Central Committee of the CCP.

On the other hand, researcher Wang cautioned that without increased government involvement in the real estate sector, the mounting debt and ongoing financial struggles faced by certain industry leaders could result in a notable increase in defaults and bankruptcies by 2024.

Furthermore, foreign direct investment in China declined last year to its lowest point in three years, amidst heightened competition between Washington and Beijing.

However, it is unlikely that Chinese authorities will articulate policies that demonstrate a greater willingness to engage with the global economy. According to experts, President Xi’s primary concern is safeguarding national security, which may take precedence over economic growth. The main challenge for him lies in striking a balance between these two aspects.

In the previous year, China made revisions to its anti-espionage law and conducted raids on foreign consulting firms, which eroded investors’ confidence in the country’s future economic prospects.

Wang, in an interview with The Diplomat News, suggested that Xi is currently navigating between the long-term stability of the social structure and the short-term need for economic stimulation.

Liu, an economist from Kiel, emphasized the importance of Xi and China finding a way to protect national security while also being selectively open to private companies and foreign investors within certain acceptable limits.

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