Chief China Strategist
Summary: China sets a real GDP growth target of "around 5%" for 2023 in the Government Work Report to the National People's Congress. This target is at the lower end of expectations ranging from 5% to 5.5% going into the meeting. Other key macroeconomic targets include adding 12 million jobs to urban area employment for 2023, a consumer inflation target of 3%, and a fiscal deficit target of 3% of nominal GDP. The report emphasizes the importance of boosting domestic aggregate demand, particularly household consumption, and aims to deepen the reform of state-owned enterprises while encouraging private enterprises to grow.
In his last Government Work Report delivered to the National People’s Congress (China’s national legislature), the outgoing Premier Li Keqiang set a national real GDP growth target of “around 5%” for 2023, which is at the lower end of expectations ranging from 5% to 5.5% going into the meeting. The figure is lower than the weighted average of provincial targets of 5.6% for 2023 and the 2022 national target of “around 5.5%”.
The “around 5%” target is the lowest ever except for 2020 when the Chinese Government did not set a GDP growth target in the midst of Covid-19. Beijing may prefer setting a lower bar after missing massively with a 3% print for actual GDP growth in 2022 versus a target of around 5.5%.
Other key macroeconomic targets include adding 12 million jobs to urban area employment for 2023, similar to the realized figure of 12.06 million in 2022, and an urban unemployment rate of around 5.5% for 2023, unchanged from the realized unemployment rate in 2022.
The target of consumer inflation for 2023 is set at 3%, higher than the 2% realized inflation rate in 2022.
The fiscal deficit target is set at 3% of the nominal GDP, slightly higher than market expectations and the 2.8% target last year. If excluding the transfer of RMB1.9 trillion from the fiscal stabilization fund and other pockets of the Government that reduced the deficit figure, the fiscal deficit will be around 4.5% of GDP, down slightly from 4.7% in 2022.
The issuance quotas for central government general bonds (CGGB), local government general bonds (LGGB), and local government special bonds (LGSB) are set at RMB3.16 trillion, RMB0.72 trillion, and RMB 3.8 trillion respectively, bringing the aggregate quota of net government bond issuance to RMB 7.68 trillion in 2023, slightly higher than the RMB 7.52 trillion quotas in 2022. The Government Work Report specifically highlighted that the RMB 3.8 trillion local government special bonds (LGSB) will be deployed to speed up the major infrastructure projects in the 14th Five-year plan (2021-2025) and urban renewal projects.
Following the script of the Central Economic Work Conference held in December 2022, the Government Work Report emphasizes the importance of boosting domestic aggregate demand, in particular household consumption.
Once again, the Chinese Government emphasizes that monetary policies are to support the real economy. It is reiterated that monetary policies aim to be steady, targeted, and forceful.
The phrase “housing is for living in, not for speculation” is back. The Government Work Report makes it clear that the support to the housing sector will focus on affordable housing, developing a long-term rental market, and stabilizing land prices, housing prices, and housing price expectations. It signals that it is not to inflate speculative activities again in housing and calls for avoiding the disorderly expansion of property developers which may cause systemic risks to the financial system. The report calls for resolving the risks of top-quality developers and ensuring the improvement of their balance sheets.
The Government Work Report calls for deepening the reform of state-owned enterprises and enhancing their competitiveness. The report reiterates the rhetoric of encouraging private enterprises to grow and support the internet platform economy.
The tone and the policy initiatives set out in the Government Work Report are measured. The growth target for 2023 sets a low bar as the focus of the Chinese authorities seems to be more on stability than on acceleration in growth. Positive gestures are made to boost the confidence of the private sector as the report acknowledges that the private sector’s confidence in making investments has been lacking for various reasons.
The key events to watch on the agenda of the National People’s Congress (NPC) this week are the presentation of the state institution reform proposal on Tuesday and the announcement of the appointment of top leaders and senior officials from Friday to Sunday, especailly . The the premiership on Saturday and other State Council, ministerial, and central bank key offices on Sunday. NPC will conclude next Monday morning, March 13.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
