China Research

On March 5, the 14^th National Party Congress (NPC) will officially open its second convention. This time, the NPC deserves particular attention.

Main focus for analysts – the officially strived GDP growth              

This year’s NPC procedures will be the same as every year.  Almost 3000 representatives from all over the country participate in this annual “parliamentary” convention of the Communist Party in Beijing – a convention  with a normal acceptance rate for all suggestions and laws of 100 percent (see also my remarks from last year, edited on March 6, 2023, https://blogg.lnu.se/china-research/?paged=6; many of the comments then should be still valid, particularly those that pointed at the economic imbalances).

One year ago, I wrote that “the officially proclaimed official GDP-growth objective of around 5 percent in 2023 surpasses the outcome of 2022 by as much as 2 percentage points. 5 percent may not be quite easy to achieve but is definitely not out of reach because of all the (possible) statistical GDP effects from the low base in 2022 and a more expansionary economic policy this year”.

This interpretation has come true. Officially, last year’s GDP came in with a growth rate of 5.2 percent. It could have been lower in reality. Economic policy has become more expansionary, also in the past few weeks. Chinese political leadership still seems to be concerned about the economic performance.

There should be every reason for political growth concerns even if we do not know enough about China’s current economic situation. But we seem to understand that China these days is at the edge of deflation. The property crisis is still there – affecting also local public debt.

Real estate is no longer driving the economy. This explains partly the ongoing reluctance of consumers – but also the disappointing performance of Chinese stocks. Purchasing Manager Index for manufacturing stayed in February again below 50 (but may have been slightly affected by the new year vacation).

The important role of confidence

Lack of confidence in the economy can currently be observed both inside and outside China. For this reason, Prime Minister Li Qiang will put a lot of emphasis on restoring confidence and go for another 5-percent growth target in 2024 (which in reality should be more difficult to meet than one year ago).

Consequently, short-term stimuli will receive more political attention than structural economic policy. However, such a short-term focus will not work without further expansionary policy steps in fiscal expenditure and credit policy. This could mean further uncertainty about official and implicit public debt – a conundrum that has been existing for many years (see Fromlet https://publications.bof.fi/bitstream/handle/10024/44981/172270.pdf;jsessionid=C0C89C49F078C34335DF6EBFA637B523?sequence=19).

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
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