China's Cautious Growth Target Limits Help to World Economy
Comment of the Day

March 06 2023

Commentary by Eoin Treacy

China's Cautious Growth Target Limits Help to World Economy

This article from Bloomberg may be of interest to subscribers. Here is a section:

China set a modest economic growth target of around 5% for the year, with the nation’s top leaders avoiding any large stimulus to spur a consumer-driven recovery already underway, suggesting less of a growth boost to an ailing world economy.

Premier Li Keqiang announced the goal for gross domestic product in his final report to the Communist Party-controlled parliament, which kicked off its annual meeting on Sunday. Economists had expected a more ambitious target of above 5% following a rebound in consumer spending and industrial output after the end of coronavirus restrictions.

Having missed the GDP goal last year by a wide margin for the first time ever, a more cautious aim this year could restore Beijing’s credibility and give President Xi Jinping and a line up of new top economic officials more room to focus on long-term policies. 

Eoin Treacy's view

5% growth is a lower headline figure than many expected and suggests China is unlikely to supply the same volume of credit as many developed markets did in the aftermath of the pandemic. That’s also the message from the credit impulse chart which peaked well below the cycle peaks of the last decade.

China’s monetary and fiscal stimulus helped to refloat the global economy in 2009-11. That also repositioned the economy to rely on debt more than productivity for growth. China has so far been able to keep official inflation under control but that also means they do not have a lot of leeway to stimulate.

The housing market is more affordable following the decline of the last 18 months and the higher deposits of consumers. The government needs a stable housing market to sustain the finances of local governments, but that no longer implies a return to the go-go years of rampant property market speculation.

The CSI300 steadied today but with the Party Congress upcoming it would rash to draw any firm conclusions until that event is over. 

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