The Communist Party is expected to convene its annual central economic work conference in mid-December, an event that will be closely watched by investors who are eager to see solutions offered up for some of China’s most pressing economic risks, including coronavirus disruptions and a property downturn.
China’s new leadership is facing economic challenges unseen in the past two decades, with growth slowing far slower than expected and external headwinds mounting.
Many of the conventional macroeconomic policies rolled out by policymakers have failed to work as intended given Beijing’s unrelenting zero-Covid policy, which has also exacerbated uncertainty and frustration among private businesses.
Now, a growing chorus of government advisers are now calling for a bigger dose of stimulus and the need to set an explicit gross domestic product (GDP) growth target for next year ahead of the meeting.
“China should set a growth target of more than 5 per cent next year. It should try to ensure an expansion of around 5 per cent on average in 2022-23,” said Liu Shijin, a central bank adviser and former deputy director of the Development Research Centre of the State Council.
Speaking at the China Macroeconomy Forum last weekend, Liu said slower growth would jeopardise total-factor productivity, dampen business and affect the country’s ability to change development model.
China’s economy expanded 3 per cent in the first nine months and is projected to grow around 3.2 per cent for the full year, lower than the average 5.1 per cent annually in 2020-21, when the pandemic upended business and social activity around the world.
Market sentiment is now so low that ordinary Chinese are saving more to prepare for a worst-case scenario, private entrepreneurs are busy restructuring businesses to survive the cold winter and foreign investors are considering Plan B amid potential supply chain disruptions.
Yang Weimin, deputy director of the Chinese People’s Political Consultative Conference’s Economic Affairs Committee, said economic growth had not reached its potential in the past three years.
“It’s urgent to reverse the trend and bring growth back to a reasonable range,” he said over the weekend.
After setting a modest and flexible growth target for 2022 at “around 5.5 per cent”, calls are growing for an explicit goal next year.
Analysts say a relatively high growth target will set a strong intention at the start of a new five-year term, will be easier to achieve given the low comparison base in 2022 and is necessary if Beijing wants to double GDP or per capita income by 2035.
Authorities have provided financing support to ease the property crisis, vowed to encourage private investment in key infrastructure projects, reaffirmed commitment to opening up for foreign investors and cut the required reserve ratio for commercial banks.
The most urgent and important thing policymakers should work on … is a well-planned systemic easing of the Covid stance
Still, economic activity remains subdued due largely to coronavirus disruptions, with the official manufacturing purchasing managers’ index falling to 48 in November from 49.2 in October. Business sentiment in the services and construction sectors also continued to decline in November.
In the eyes of investors, confusion reigns over policy direction, as key government positions, including premier, vice-premier, finance minister, central bank governor, banking regulator and head of the top economic planning agency, will only be decided in March.
The closed-door central economic work conference, where incoming economic officials will have a say in policymaking, is widely viewed as an opportunity to glimpse new economic thinking.
“The most urgent and important thing policymakers should work on at the central economic work conference is a well-planned systemic easing of the Covid stance,” said Louis Kuijs, chief Asia-Pacific economist of S&P Global Ratings.
S&P has raised its estimate for China’s growth this year to 3.3 per cent, while projecting 4.8 per cent growth for 2023.
Many overseas investment banks have cited Beijing’s zero-Covid strategy as a key factor in their downward revisions of growth forecasts, with many picking reopening to start in the second quarter after the new government takes office.
Kuijs said even if virus policies are eased there will be remaining issues such as vaccinations and it will take some time for market confidence, household consumption and private investment to fully resume.
While the annual conference could talk about support for economic growth and the property market, it is unlikely to announce concrete numbers, he said.
According to tradition, annual targets, including GDP and the fiscal deficit ratio, will be deliberated within small groups during the conference before they are released in March.
“We suggested that the fiscal deficit ratio should be raised to 3 per cent [from 2.8 per cent in 2022],” according to a report released by a research team of Renmin University over the weekend.
Jia Kang, a former head of the Ministry of Finance’s research institute, called for bigger leverage with public-private partnership projects.
“Don’t simply restrict ourselves to a 3 per cent cap suggested in the Maastricht Treaty,” he told a webinar hosted by the Economic Research Journal over the weekend, referring to the foundation document for the European Union that requires member countries to have annual budget deficits not exceeding 3 per cent of GDP.
“We must expand the size of government debt appropriately and well handle its usage and debt structure. Domestic demand needs to be expanded through effective investment and consumption.”