China can reach 5% growth rate in 2024, ex-PBOC official says
CHINA’S economy needs to grow by about 5 per cent in 2024 to signal that the nation’s development is stable and healthy, a former Chinese central bank official said.
“Around 5 per cent growth next year is necessary for China, and it is possible to achieve,” said Sheng Songcheng, a former director of the People’s Bank of China’s (PBOC) statistics and analysis department.
Sheng’s remarks come as the world’s second-largest economy looks likely to secure growth for 2023 of around that amount, too, in line with an official target set earlier this year. Stronger-than-expected third-quarter data published last week bolstered those expectations, with officials saying they were “very confident” the country would hit the goal.
Achieving that growth rate next year will be more difficult, though, as the ongoing housing crisis remains a serious drag. The rate mentioned by Sheng would be above consensus for 2024: According to the median estimate in a Bloomberg survey, gross domestic product is likely to expand by 4.5 per cent next year.
“The rebound seen in the third quarter will not be short-lived,” Sheng said. He added that the economy may keep improving gradually, citing recovering growth in aggregate financing to the real economy, a leading indicator gauging credit demand and the impact of monetary and fiscal policy.
Sheng is one of several government-linked economists floating an ambitious growth target for 2024 – likely meaning more reliance on fiscal stimulus in the new year given the weakness in the housing market.
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“I think 5 per cent is a very good number because 5 per cent is actually pretty high given the current situation, that means certain reforms have to be done to reach 5 per cent,” Li Daokui, a former member of the PBOC’s monetary policy committee, told Bloomberg News before the third-quarter figures were published.
China will likely set an economic target for next year in December at a work conference, before publicising it in March.
The potential need for more stimulus has also been highlighted by other economists, including Morgan Stanley’s Robin Xing. During a recent round-table discussion, Xing, the bank’s chief China economist, noted that 2023’s projected growth of around 5 per cent was partly due to a low base of comparison with last year, and said achieving 5 per cent in 2024 would need more aggressive fiscal policies, such as the issuance of special sovereign bonds.
There are other issues to contend with, including deflationary pressures and ongoing debt woes within local governments. The job outlook is gloomy, which means it’s not entirely clear how sustainable the rebound in household spending will be. Geopolitical tensions are also a factor as the US tightens restrictions on China’s access to advanced technology and Europe probes the country’s export dominance in electric cars.
Sheng acknowledged China faces “more problems” now than it had in previous down-cycles. He said the recovery this time around will likely be “relatively slow”, singling out property and local government debt as two “outstanding” issues.
He sees room for the central bank to trim interest rates or the reserve requirement ratio (RRR) for banks in the fourth quarter of this year and next year. RRR reductions may be more preferable than rate actions, he said, adding that he sees the probability of interest rate cuts dwindling heading into 2024.
That’s because borrowing costs in the economy are already “very low”, he said. Lenders are also under enormous pressure to maintain a profit, while the widening yield gap with the US is weighing on the yuan and risking a further drive in capital outflows, he added.
“The pressure on the yuan’s exchange rate will increase further if the China-US rate gap continues to enlarge,” Sheng said. “That’s one of the reasons why China will be cautious about cutting interest rates.”
The Chinese currency has depreciated almost 6 per cent so far this year against the US dollar as the yield gap with the US climbed to the largest since 2002.
Meanwhile, Liu Yuanchun, president of the Shanghai University of Finance & Economics, called for policymakers to raise the country’s official budget deficit to “about 3.2 per cent” of GDP from this year’s 3 per cent to support growth next year. Liu has advised Chinese President Xi Jinping and Premier Li Qiang.
“From the perspective of improving confidence, and considering China’s potential growth, we recommend that next year’s growth pace be ensured to be in the range of 4.5 per cent to 5 per cent,” he said at an online seminar this month. BLOOMBERG
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