China today renewed its commitment to economic stability after announcing a growth target of 5.5% for its gross domestic product (GDP) in 2022, one of the lowest in recent decades.
This figure represents a significant reduction compared to the 8.1% advance that the national economy experienced in 2021 thanks, among other factors, to the ‘boom’ of exports in the framework of the post-pandemic industrial recovery in China and the low comparative base after the impact of covid on the data of the previous year.
In any case, and although it is true that meeting the objective would confirm the slowdown trend marked in recent years, it is a relatively ambitious goal, since it is located at the upper end of the range in which the forecasts of analysts, who placed it between 5 and 5.5%.
As usual, it was the Prime Minister, Li Keqiang, who unveiled this morning, from the Great Hall of the People in Beijing, the economic forecasts for 2022 when presenting his report on the work of the Government during the opening session of the plenary session of the National Assembly (PNA, Legislative), the main annual political event in China.
“We must persist in putting stability in the foreground and strive for progress based on it. In the face of the new pressure exerted by the decline of the economy, we must place stabilization in a more prominent place,” the president said in his speech.
Li warned of the “remarkable” increase in risks and challenges facing the national economy, but expressed confidence that it “will be able to resist downward pressure, advance steadily and go far.”
The goal requires “arduous efforts”
Li described the growth target as “medium-high”, recalling that it is based on a “high base” of comparison and, unlike on previous occasions, warned that reaching these figures “requires hard efforts”.
The main international economic institutions also believe it, if they maintain their projections: in its latest updates, the World Bank (WB) predicted that the Chinese economy would grow by 5.1% this year, while the International Monetary Fund (IMF) placed the figure at 4.8%.
“Beijing has set itself such a high goal because it is a politically important year,” wrote Peking University finance professor Michael Pettis, referring to the 20th Congress of the Communist Party of China (CPC), which will be held next October. and in which the president, Xi Jinping, is expected to revalidate his leadership at the head of the formation and the country for an unprecedented third term among his latest predecessors.
In the opinion of this expert, any growth of more than 3 or 4% will have to be accompanied by significant investment in infrastructure, “much of which will not boost the real capacity of the economy to produce goods and services.”
In this regard, Pettis stressed that the amount of 3.65 trillion yuan (577.742 million dollars, 527.730 million euros) that will be authorized for local and regional governments to issue special bonds dedicated to infrastructure remains almost 70% higher to that of 2019 -the last year before the pandemic-, and predicted an increase of between 3 and 5 points in the ratio of debt to GDP.
“I think the government has a challenging year ahead of it to achieve its goals. The real estate sector is slowing down and the covid pandemic has severely constrained the service sector,” Zhang Zhiwei, an analyst at Pinpoint Asset Management, was quoted as saying by the daily. Hong Kong South China Morning Post.
Deficit, employment, tax cuts…
Zhang also highlighted that the authorities set a fiscal deficit target even lower than expected by the market, reducing it to 2.8% of GDP.
In 2021, given the control of covid infections and the economic recovery, China has already lowered its deficit target from 3.6% to 3.2%.
On the other hand, the Government maintained some of its objectives at the same levels as last year, such as “containing” the increase in the consumer price index (CPI, the main indicator of inflation) by around 3%, or to create 11 million jobs, despite the fact that 12.69 million new jobs were created in 2021, according to official data.
In the field of employment, one of the priorities for the stability advocated by Beijing, there is also the objective of keeping the unemployment rate in urban areas below 5.5%, an indicator that ended 2021 at 5.1%.
Li had an impact on one of his workhorses, tax rebates, by announcing that this year tax rebates and refunds will add up to 2.5 trillion yuan (395,714 million dollars, 361,459 million euros).
Although Beijing has promised to reach its peak of carbon emissions in 2030, the president indicated today that these plans will be promoted in an “orderly” manner.
Regarding support for market players -especially SMEs that employ more than 80% of urban workers and that have suffered especially the impact of the pandemic-, Li indicated that financial institutions will be asked to “lower real interest rates on loans and reduce charges” to facilitate financing and lower its cost.
He also assured that the yuan exchange rate will remain “stable” and at a “reasonable and balanced level” and that the population’s income “will increase through different channels” to increase consumption capacity, one of the indicators that is most taking time to recover after covid and which is key to the plans to change the economic model advocated by Beijing.
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