November 10, 2023
BEIJING – Proactive target expected to motivate sectors to unleash full potential
China can consider a proactive GDP growth target of above 5 percent in 2024 to bring economic growth back to its potential level, anchor market expectations and fulfill longer-term development goals, leading experts said.
Fiscal expansion would be crucial for achieving the target, complemented by accommodative monetary moves, they said, adding that a more than 3% deficit-to-GDP ratio should be acceptable in 2024 if needed.
Yu Yongding, an academic member of the Chinese Academy of Social Sciences, told China Daily in an exclusive interview that it is necessary for China to set next year’s GDP growth target at a rate that outruns this year’s growth as long as inflation remains subdued.
“Assuming China’s economy grows 5 percent this year, the target for 2024 should certainly exceed 5 percent,” Yu said, adding that setting a proactive growth target would motivate different sectors to unleash their full potential in promoting economic development.
China’s GDP growth clocked 5.2 percent year-on-year in the first three quarters, with the International Monetary Fund forecasting a full-year growth rate of 5.4 percent thanks to rebounding domestic demand. The IMF, however, cautioned that growth could slow in 2024 amid property market weakness and subdued external demand.
Attention has been focused on how the annual Central Economic Work Conference, which usually takes place in mid-December, will set the tone for macroeconomic policy setting in 2024. Deemed as a move that indicates policymakers’ emphasis on paving the way for solid growth in 2024, China’s top legislature approved additional treasury bond issuances worth 1 trillion yuan ($137.2 billion) in late October.
The approval for additional treasury bonds is an “important step in the right direction”, Yu said, which brings this year’s deficit-to-GDP ratio to about 3.8 percent and shatters the so-called taboo of a 3 percent red line for fiscal deficit.
It would be sensible to set next year’s deficit ratio above 3 percent if necessary for achieving the economic growth target, Yu said, stressing that expansionary fiscal policy is crucial for stabilizing growth at a level in line with China’s potential growth rate.
The potential growth rate refers to the highest possible rate at which an economy can grow without triggering inflation while operating at full employment.
Yu, who used to serve on the Monetary Policy Committee of the People’s Bank of China, the country’s central bank, added that the scope for interest rate cuts at this moment may be limited due to various constraints, including US-China interest rate spreads and the falling interest revenues of commercial banks.
In the current stage, fiscal policy should take the lead, Yu said. Monetary policy can play a complementary role, such as taking measures to offset the rise in interest rates due to the issuance of additional treasury bonds.
The Ministry of Finance will continue to implement a proactive fiscal policy and bring about better policy effect, Finance Minister Lan Fo’an said in an interview with Xinhua News Agency, which was published on Sunday.
Echoing Yu’s views, Li Xiaochao, former deputy head of the National Bureau of Statistics, said it would be appropriate to set next year’s GDP growth target at 5.5 percent.
“Faster growth is needed to anchor the expectations of businesses and households,” Li said, attributing the current subdued sentiment among them mainly to slower economic growth in recent years, which resulted in a tepid increase in corporate earnings and household income.
Li noted in an article published by the Chinese Academy of Social Sciences’ Center for City and Competitiveness that about 11.87 million college students are estimated to graduate next year, a new record high. It will also make it necessary to speed up economic growth so that more jobs can be created, he added.
Experts said that a GDP growth target above 5 percent would better serve the country’s longer-term goals given that China’s long-range objectives through 2035 imply an average annual economic growth of 4.6 percent, but the annualized growth rate of 2022 and 2023 would only slightly exceed 4 percent, according to Ping An Securities.
Nevertheless, some other experts are more cautious and believe a target of around 5 percent, the same as this year, would be more achievable and reasonable in 2024.
Feng Jianlin, chief economist at Beijing FOST Economic Consulting Co, said that China’s economic growth may face downward pressures next year as the favorable comparison effect due to COVID-19 fades, especially in the first quarter.
Feng said he expects China to set next year’s GDP growth target at about 5 percent, underpinned by plenty of policy support for the real estate sector, manufacturing investment and infrastructure investment.