China sets ambitious 5% growth target amid economic challenges

China has unveiled an ambitious strategy - to secure economic growth of around 5 percent. The "Financial Times" highlights that this will be challenging. The world's second-largest economy faces numerous obstacles, including a slowdown in the real estate market and diminishing investor interest.

The initiative presented by Li Qiang, deputy to President Xi Jinping, was analyzed in their report by experts from ING bank. They noted that, as expected, during the opening of the annual National People's Congress, which was attended by 2,800 delegates, authorities confirmed last year's GDP growth target of about 5 percent for 2024. Throughout 2023, China's GDP growth was at 5.2 percent, while the previous year it was at 3 percent.

The Chinese authorities also anticipate that inflation by the year's end will rise to about 3 percent.

How does Beijing intend to foster growth? "China plans to issue special long-term maturity central government bonds to finance the government's strategy valued at a trillion yuan (approximately £110 billion). Simultaneously, a more proactive fiscal policy has been announced, although the fiscal deficit relative to GDP is expected to fall to 3 percent from 3.8 percent last year.

Analysts quoted by the "Financial Times" stress, however, that the goal set by Beijing is ambitious. "The journey to repeating five percent growth in 2024 will be challenging," said one of them.

As ING experts point out, a cautious monetary policy and stable currency exchange rate will be upheld in China.

The insights from the annual meeting of Chinese party activists did not reveal any surprises, nor signals pointing towards a return to intense economic stimulation. Authorities are concentrating on significant long-term goals (green transformation, advancement of the digital economy, innovations) as well as the balance of the economy and remain far from the measures previously employed, such as significant stimulation through the real estate market - ING experts explain.

They underline that the Chinese authorities are also committed to promoting new consumption, which may include vehicles and home appliances, as well as catering, tourism, and leisure services that showed promising results last year. "The economic recovery in China post-pandemic is slower than anticipated, with the economy battling structural issues - a crisis in the real estate sector and a heavy debt load of local governments" - the bank's report details.

The Chinese authorities also highlight sectors poised for particular growth, such as artificial intelligence and the military, with spending on the latter expected to hit 7.2 percent of GDP.