The Chinese national flag flies atop the Great Hall of the People ahead of the opening ceremony of the Belt and Road Forum (BRF), marking the 10th anniversary of the Belt and Road Initiative, in Beijing, China, October 18, 2023.
Edgar Hsu | Reuters
This raises questions about whether the Chinese government will step up with large-scale aid. So far, authorities have been relatively modest.
Wang Jun, chief economist at Huatai Asset Management, said in December that the Chinese government suggested that any new policy support would be “appropriate” and said it was “unlikely” that stimulus would be as large as in 2008. ” he added. His remarks in Mandarin, as translated by CNBC.
China's economic policy is usually decided at an annual meeting in December of the leaders of the ruling Chinese Communist Party.
This month's meeting, known as the “Two Sessions,” will be held at the government level rather than the party level, and typically details policy plans such as this year's GDP targets.
Wang said he was awaiting comments on the authorities' plans for the real estate sector, capital markets and local government finance.
In 2008, when the world was reeling from the financial crisis, China launched a large-scale economic stimulus package to maintain growth through increased demand. Although the economy recovered, the measure drew criticism for causing local government debt to skyrocket.
In recent years, the Chinese government has stressed the need to stem fiscal risks and cracked down on real estate developers' reliance on debt for growth, an issue that concerns local government finances. This time, China's monetary policy also faces constraints on how far it can deviate from the US Federal Reserve's interest rate path.
The advisory body, the Chinese People's Political Consultative Conference, is scheduled to begin its annual meeting on Monday.
The National People's Congress (NPC) session is scheduled to begin the next day. Tuesday is also the day the country's prime minister is scheduled to announce this year's targets for GDP, employment and other economic indicators in a so-called “government report.”
“The target is likely to remain relatively high,” said Zhong Liang, chief researcher at the Bank of China, referring to last year's gross domestic product (GDP) growth rate of 5.2%. According to a CNBC translation of his remarks in Mandarin:
He expects the fiscal deficit target to be around 3.5% and monetary policy to be relatively accommodative.
In October, China made an unprecedented announcement that it would raise its budget deficit from 3% to 3.8%.
“We expect the budget deficit, which excludes special bonds, policy bank bonds and local government financing vehicle (LGFV) debt, to be set at 3.0% to 3.5% of GDP, down from 3.8% of GDP last year.”Oxford Louise Lu, chief economist at Economics, said in a report on Thursday.
“We expect the local government special bond (LGSB) quota to increase moderately to 4.0 trillion yuan from 3.8 trillion yuan last year,” Lu said. “Authorities also announced that this year, as the debt restructuring process continues among local governments, the planned Central Government Special Bonds (CGSB) will total RMB 1 trillion, reflecting the increasing role of Central Banks. I may finally put pen to paper about it.”
“Ultimately, assuming no bazooka-like fiscal stimulus is planned, additional fiscal spending this year is unlikely to be particularly large.”
The second session will also be the period during which the budget will be announced and participants will discuss any necessary policy changes or plans.
“Speeches by top policymakers will be key to the spotlight, including interviews with key ministers such as the Minister of Industry and Information Technology, the Minister of Science and Technology, and the Minister of Housing and Urban and Rural Development. will be discussed in more detail,” Goldman Sachs analysts said in a report.
Chinese officials are also likely to discuss plans to boost technology and innovation in Congress, in line with recent calls from high-level officials to boost “new productive capacity.”
China's foreign minister and prime minister usually hold press conferences during the parliamentary session, which usually ends in mid-March. The dates have not yet been announced.
Bank of China's Zhong hopes policymakers will send signals about opening borders to foreigners, other business opportunities and improving conditions for non-state-owned enterprises.
However, specific implementation details are typically left to announcements by ministries and agencies, following high-level direction from Beijing.
While direct support for consumption is unlikely, broader moves to improve social safety nets will be closely watched.
“On the demand side, the third plenary session was delayed. [of the Chinese Communist Party’s Central Committee] Although it suggests that long-term demand policy, including fiscal, tax and pension reforms (originally scheduled for December) may still be in the early stages of discussion, it is nevertheless worth mentioning here. “There may be,” Lu said.
This year's two sessions follow regular leadership changes that have tightened the ruling Chinese Communist Party's control of the government.
In parliament last year, the Chinese government announced that it would set up party-led committees to oversee both the financial and technology sectors and overhaul regulations. Chinese President Xi Jinping, who is also the party's general secretary, won an unprecedented third term as president.
There are no changes planned in key positions in the Chinese government or party leadership this year, while the United States is planning a presidential election in November.
Since last summer, Chinese authorities have already announced a number of policies aimed at boosting growth, acknowledging the need to boost confidence. Critics say the measures are relatively piecemeal.
Recently released economic indicators show mixed growth, with manufacturing showing some improvement but real estate at best stabilizing.
Huatai's Wang expects the economy to recover gradually this year, and in contrast to last year, nominal GDP will exceed real GDP. This means that this year's improvements will be more tangible for consumers and businesses.