Beijing's advisers will suggest economic growth targets from 4.5% to 5.5% for the upcoming year at an annual policymakers’ meeting, as Beijing aims to create jobs and maintain long-term development goals.
Five of the seven advisers who spoke with Reuters said they favored a target of around 5%, matching this year’s goal. One adviser will propose a 4.5% target, while the other suggested a 5.0%-5.5% range.
The proposals will be made next month at the ruling Communist Party’s annual Central Economic Work Conference, which discusses policy plans and the outlook for the world’s second-largest economy.
Reaching such targets would require Beijing to step up fiscal stimulus, the advisers said, given that this year’s growth has been flattered by last year’s low-base effect of COVID-19 lockdowns.
"We need to adopt expansionary fiscal and monetary policy to stimulate aggregate demand," Yu Yongding, a government economist who advocates for a growth target of roughly 5%, told Reuters.
"Corporate investment demand will not be strong as the confidence of companies has not recovered, so we need to expand infrastructure investment," added Yu, who also favors a budget deficit topping 4% of economic output.
The other advisers spoke on condition of anonymity due to the closed-door nature of the discussions. Top leaders are expected to endorse the target at the December meeting, although it will not be announced publicly until China’s annual parliament meeting, usually held in March.
In October, China unveiled a plan to issue 1 trillion yuan ($139 billion) in sovereign bonds by the end of the year, raising the 2023 budget deficit target to 3.8% of gross domestic product (GDP) from the original 3%.
Chinese leaders have pledged to "optimize the structure of central and local government debt," suggesting the central government has room to spend more as its debt as a share of GDP is just 21%, far lower than 76% for local governments.
"We are stepping up fiscal policy support," said another adviser, to make the "difficult" 2024 target "achievable."
Monetary stimulus is expected to play a more limited role as the central bank remains concerned a widening interest rate differential with the West may further weaken the yuan and encourage capital outflows.
"The space for monetary policy could be bigger if we have greater tolerance for exchange rate fluctuations," said Guan Tao, global chief economist at BOC International and a former official at the State Administration of Foreign Exchange (SAFE).
Reforms versus stimulus
China’s economy grew only 3% in 2022, one of its worst performances in nearly half a century. A Reuters poll in October showed that economists expect it to grow 5.0% in 2023 and 4.5% in 2024, although some have since raised their forecasts.
In 2022, President Xi Jinping laid out a long-term vision of "Chinese-style modernization" at a key party meeting, aiming to double China’s economy by 2035, which government economists say would require average annual growth of 4.7%.
The stuttering post-COVID-19 recovery has prompted many analysts to call for structural reforms that tilt the drivers of economic growth away from property and infrastructure investment and toward household consumption and market allocation of resources.
Absent that, these economists warn, China may begin flirting with Japan-style stagnation later this decade.
Beijing has been trying to reduce economic reliance on property, channeling more resources into high-tech manufacturing and green industries, but has struggled to boost consumer and investor sentiment.
Policy insiders believe more fundamental changes, especially a revival of market-oriented reforms, are unlikely due to the political environment under which the state has increased its control over the economy, including the private sector.
"If there is no consensus on reforms, we will have to use stimulus to drive growth, even though it will not be sustainable," a third adviser said.