CHINA is set to announce its 2024 growth target and outline its strategy for supporting the slowing economy at the nation’s most high-profile annual political gathering this week.

Premier Li Qiang will deliver the government work report for the first time at the National People’s Congress (NPC) on Tuesday (Mar 5). Officials are looking to chart a recovery after a turbulent year that saw the economy grapple with deflation, an ongoing property crisis, mounting debt burden and foreign capital exodus.

Investors will closely scrutinise policy priorities and stimulus signals as Beijing is expected to announce an annual growth target of around 5 per cent – the same as last year but one that will be harder to achieve because of a higher base of comparison. Areas of focus will include the strength of fiscal stimulus, new economic drivers as President Xi Jinping steers China away from a property-driven growth model, and the government’s plan for boosting consumption.

Beijing’s policy stance will likely stay growth-friendly but won’t be a “bazooka-type stimulus”, JPMorgan Chase & Co economists said in a note previewing the NPC. “The policy tone has been pre-determined at the Central Economic Work Conference last December, and we see little chance of a major deviation.”

“It will be a positive surprise” if the work report shows that policymakers share market concerns about the economic challenges, including deflation risks, unemployment and fallout from the property downturn, the economists added.

The work report and the budget will be delivered on the first day of the NPC, and will be discussed and approved in the following days.

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Here’s what to expect:

Growth target

The 2024 target will be the single most important policy signal from the NPC. Most economists expect China to set a GDP target of around 5 per cent this year, with an analysis of provincial goals supporting that view.

Setting the same goal as 2023 would still raise the bar as last year’s growth rate of 5.2 per cent was against a low base of comparison from the prior year, when strict pandemic controls hampered economic activity.

China continues to face headwinds in 2024, especially the issue of deflation. A gauge of economy-wide prices posted the longest deflationary streak last year since the Asian financial crisis in the late 1990s. The trend appears set to continue, adding to the challenge for policymakers as they try to rev up growth. China’s annual consumer price index (CPI) rose 0.2 per cent in 2023 compared with a target of 3 per cent.

Setting an ambitious growth goal and maintaining the CPI target (a ceiling in practice) despite the deflationary pressures would show that policymakers are focused on economic growth, Goldman Sachs Group analysts including Maggie Wei wrote in a note.

Stimulus

China may need stronger stimulus to achieve its growth target this year. The Ministry of Finance’s budget report, which will also be released on Tuesday, will show just how far Beijing is willing to go to shore up the economy.

China has long tried to keep its official deficit around or under 3 per cent of GDP to execute fiscal discipline and control risks. In recent years there have been increased calls from economists to loosen the limit, and Beijing’s rare decision to boost last year’s budget deficit-to-GDP ratio to 3.8 per cent was seen as a step in the right direction.

With top leaders vowing to strengthen fiscal policy “appropriately” at recent meetings discussing key policies for 2024, economists are anticipating a fiscal deficit of about 3.3 per cent of GDP, compared with the 3 per cent initially targeted for 2023, according to the median estimate in a Bloomberg survey.

However, many local governments may struggle to take on more debt to support that deficit, as they are already struggling with a heavy debt burden and falling income due to the property crisis. This means the central government will need to borrow more if it wants to see a big increase in spending.

On the monetary policy front, officials will likely reiterate that it will be flexible, appropriate and precisely targeted, that money supply and credit growth should be in line with economic growth and inflation targets, and structural monetary policy will be strengthened to support targeted sectors.

New growth drivers

As the property sector declines, the government needs to reshape the nation’s economic model to drive growth over the next decade. Recently state media has repeatedly mentioned “new productive forces”, saying this will likely be a key theme at the NPC.

The term was introduced by Xi in September during an inspection trip to the country’s northeast. The official Xinhua News Agency said it means “advanced productivity freed from traditional economic growth models”, featuring new growth drivers that are “high technology, high efficiency, and high quality”.

The government has poured money into manufacturing, focusing on what they call the “new three” growth drivers of electric vehicles, batteries and renewable energy. But that risks fuelling overcapacity in these industries and could further raise trade tensions with the United States, Europe and others.

The work report will also be scrutinised for details around “high quality development”, which sums up Xi’s approach of promoting high-tech and green industries and avoiding another bout of unsustainable, debt-fuelled growth.

Property

After a yearslong property market downturn, there are signs the government is doing more to support the sector as prices keep falling. The People’s Bank of China last month announced the biggest-ever cut to a key mortgage reference rate to stimulate sluggish demand.

Beijing has also been promoting a new housing model, which involves building affordable housing, renovating urban villages and constructing emergency public facilities, to help drive a rebound. This could be a topic of discussion at the NPC.

Economists at Mizuho Financial Group said unconventional measures will likely be needed to tackle the persistent weakness in the property market and restore stability. A more effective approach could involve the government extending direct credit support to private developers through policy banks and asset management companies, rather than relying solely on commercial banks.

“However, implementing such policy support would be unprecedented and might fall outside policymakers’ comfort zone. As a result, we do not anticipate these measures being unveiled immediately after the March meeting,” the Mizuho economists said.

In the short-term, there’s little sign of a turnaround in demand yet, with new homes sales by the largest 100 developers falling 60 per cent in February from a year earlier to the lowest level in more than three years. There may be a silver lining to the continued drop in home prices: Goldman analysts argue that over the medium to long run, lower housing cost burdens suggest households can save less and consume more than before.

Consumption

With confidence among consumers remaining subdued, the government is looking to revive consumption by focusing on household purchases of big-ticket items such as electronic products and cars.

Beijing will introduce measures to stimulate purchases of vehicles and household appliances, a commerce ministry official said. It will encourage the renovation of old houses and spur “new forms” of consumption such as cross-border e-commerce and new energy vehicles.

Xi said at a recent meeting that speeding up product upgrading is an important measure for promoting high-quality development.

Goldman economists said any innovative and concrete demand-side stimulus such as large-scale policy support for big-ticket consumption could help improve confidence towards the economic outlook this year.

On the flip side, any discussions about increased scrutiny of local government financing and more aggressive implementation of energy consumption controls could suggest constraints on near-term growth. BLOOMBERG