Why did China announce the lowest growth target in decades?

China aims for economic growth of around 5% in 2023 – one of its lowest goals in decades.

Outgoing Chinese Premier Li Keqiang revealed the goal Sunday at the opening of the National People’s Congress, China’s artificial parliament that meets until March 13 in Beijing.

The conservative goal comes as Beijing seeks to revive the world’s second-largest economy after abandoning its “zero COVID” policy of lockdowns, mass testing and quarantines late last year.

Why is China’s economic outlook so modest in 2023?

China’s economy officially grew by 3% in 2022 – well below the target of 5.5% – as tough pandemic restrictions, a housing market crash, government crackdowns on private firms and the US-China trade war hampered growth.

Except for 2020, when the coronavirus upended the global economy, the economic growth rate last year was the lowest since 1976, the last year of Mao Zedong’s Cultural Revolution.

Although China’s economy appears to be recovering strongly from the pandemic — manufacturing activity in February, for example, shattered expectations, growing at the fastest pace in more than a decade — Chinese officials have warned of risks ahead.

While acknowledging China’s “enormous potential and growth momentum,” Li pointed to “growing distrust of the external environment,” including high inflation, and “external attempts to suppress and contain China”—a thinly veiled reference to the country’s intense geopolitical competition with the United States. . States.

The Chinese economy also faces serious long-term challenges at the domestic level, including a huge housing bubble and a shrinking labor force due to a low birth rate.

Many economists believe that China’s era of high growth — marked by decades of double-digit expansion each year — is now over.

In a report released in March last year, Australian research institute Lowy predicted that the Chinese economy would grow 2-3% annually through 2050, challenging long-held assumptions that China would overtake the United States as the world’s largest economy. . in the coming decades.

At the opening of the National People’s Congress, where the ruling Communist Party will choose its leaders for the next five years, Li signaled that Beijing would not rely too heavily on government coffers to spur growth, stressing the need to relaunch private consumption and devote spending to achieve this. “Expensive items.”

Li said the government aims for a budget deficit of 3% of GDP in 2023, up slightly from 2.8% last year.

Li has also placed great emphasis on job creation, setting a target of 12 million new urban jobs in 2023, against the target of 11 million in 2022.

“In my opinion, they’re managing expectations,” Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, Hong Kong, told Al Jazeera.

“If you look at the details, they are announcing less issuance of private government bonds because they have done a lot of preloading and they don’t want to create a budget deficit.”

The modest target may also be part of the more pessimistic economic outlook that prevailed at the Central Economic Work Conference, a major annual economic conference, in December, said Chewe Chang, chief economist at Pinpoint Asset Management in Hong Kong.

“The global outlook was much tougher at that time as the United States and Europe were on the brink of recession,” Zhang told Al Jazeera.

Nor was China’s economic recovery evident. Given the sweeping government reshuffle, the key question to watch over the coming months is how the new leadership will boost private sector confidence. It is more important than fiscal and monetary policy, in my opinion. »

Will China achieve the growth target?

Most economists believe that China will be able to reach or even exceed 5% growth in 2023, especially as the economy is emerging from a weak base last year.

“He is neither overly optimistic nor spending much to drive growth,” ING Financial Group said in a note. It’s more focused on long-term growth challenges. In our opinion, achieving these goals will not be very difficult.

Zhang of Pinpoint Asset Management said Beijing’s target should be seen as “the growth ground that the government is willing to take”.

“Indeed, given the very weak base of economic activities last year, it is very unlikely that growth will fall below 5%,” he said. There is no fiscal stimulus from the NPC, which is not surprising since the economic recovery is already on the right track. »

García Herrero of Natixis said the Chinese economy will “probably” grow by more than 5% this year.

“I would say they know the economy will not grow at eight percent or something like that, but definitely around five,” she said.