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5 reasons why China's 5% GDP growth target is in the news
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  • 5 reasons why China's 5% GDP growth target is in the news

5 reasons why China's 5% GDP growth target is in the news

FP Staff • March 5, 2024, 20:11:22 IST
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Analysts have been warning investors to stay away from investing in China. Goldman Sachs chief investment officer Sharmin Mossavar-Rahmani said, ‘Most people think that is not the real growth number—it was actually a lot weaker’

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5 reasons why China's 5% GDP growth target is in the news
Premier Li Qiang addressed National People's Congress at the Great Hall of the People in Beijing on Monday. Reuters file

China is still in the midst of a property crisis, and consumers aren’t spending as freely as before, despite that the government expects “around 5 per cent” GDP growth for 2024.

Though the Xi Jinping administration appears to be optimistic in achieving the target, the investors and big nations are cautious with the Asian nation’s underperforming economy.

Announcing the “ambitious” numbers, Chinese Premier Li Qiang did not miss to highlight that “the underlying trend of economic recovery and long-term growth remains unchanged and will remain so.”

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He also asked China to be “prepared for all risks and challenges and not lose sight of worst-case scenarios.”

China and its worrying economic situation is making headlines over the past months, but why the country’s 5 per cent GDP growth target is again a big news.

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**1 – Double-digit growth just a dream
**
China, the world’s second-largest economy, for decades enjoyed the double-digit growth but post-COVID that has just become a dream for the nation.

In 2023, China’s economy officially grew 5.2 per cent, its weakest performance in decades.

Also, announcing 5 per cent GDP growth for 2024, the premier said, “achieving this year’s targets will not be easy.”

2 – Premier won’t meet the press
The numbers announced by Li surely raises questions among people and media, especially foreign journalists, but China has broken the tradition running for three decades and has announced that the premier will not address press at the end of the meetings this year.

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This is leaves no scope for the Chinese government to respond to pressing questions from media on its worrying economic situation.

3 - Continued deflationary pressures
China has been facing deflation, becoming the only major economy with negative consumer prices, dropping 0.8 per cent year-over-year in January, its steepest drop in 15 years.

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To address some of the situations affecting its economy, China plans to target an urban unemployment rate of around 5.5 per cent, the creation of 12 million new urban jobs and a consumer price index increase of around 3 per cent.

As people fear job losses, they are apprehensive of buying expensive goods and services, Li said the government will encourage spending on big-ticket items including electronics and new-energy vehicles.

“We must push ahead with transforming the growth model, making structural adjustments, improving quality, and enhancing performance,” Li added.

Li has taken into account the “need to boost employment and incomes and prevent and defuse risks.”

4 - Declining births and ageing population
China continues to face the brunt of the one-child policy as it saw a decline in population for the second time in a row, earlier this year. It also saw record low birth rates at 6.39 births per 1,000 people, down from 6.77 births in 2022.

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Li has promised to improve policies supporting childbirth in the country, while raising benefits and basic pensions for its growing elderly population.

“Unlike Japan that got rich before it got old, China is getting old before it gets rich,” a Reuters report quoted Qian Wang, chief Asia-Pacific economist at investment firm Vanguard, as saying.

5 – Will investors turn back to China?
The economic projection released by China did not appear to have given assurance to investors to return and invest in the country.

Despite an emphasis on defusing risks and promoting long-term growth, the address by did not mention any “concrete measures in stabilising the property market,” HSBC analysts said.

Goldman Sachs chief investment officer Sharmin Mossavar-Rahmani echoed the same. “One should not invest in China,” she warned.

“Investors shouldn’t be attracted to cheap Chinese equities, battered by a lengthy markets slump,” Rahmani said in an interview with Bloomberg.

Justifying her statement, Rahmani pointed to three weaknesses in particular—property, infrastructure, and exports—for her bearish view.

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She also blamed a lack of clarity on policymaking and patchy economic data.

“Policy uncertainties generally put a little bit of a cap on the equity market,” Rahmani said.

She further said, “Most people think that is not the real growth number—it was actually a lot weaker.”

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