Key takeaways from China’s 2023 growth target

Premier Li Keqiang recently announced China’s 2023 GDP growth target of “around 5%”, in-line with consensus forecasts.¹

There were reports ahead of the release of the government work report that policymakers could set a more ambitious growth target, chock full of stimulus measures, though that certainly hasn’t transpired.

The modest growth target shouldn’t come at a complete surprise: most provincial governments recently came out with lower 2023 growth targets compared to the previous year and the annual Central economic Work Conference in December focused on “promoting overall economic improvement” and the “quality” of growth.

Little reliance on new fiscal stimulus

Indeed, the government’s budget for the year is largely neutral with little reliance on new fiscal stimulus. Conscious of persistently high levels of inflation in other parts of the world, Chinese policymakers are wary of over-stimulating demand.

While the headline budget deficit target has increased to 3.0% of GDP from 2.8% in the prior year and fiscal stimulus (via special-purpose local-government bond issuances) has also increased to RMB 3.8trn from 3.65trn.¹  

The overall government budget (including the official budget, state-capital operations budget and government funds budget) amounts to around RMB 9.57trn or 7.4% of GDP compared to 7.3% in 2022.²

A conservative growth target

Still, I believe the “around 5%” forecast could be conservative. One example: the government is only budgeting 0.4% increase in revenue for government funds – which mostly comes from local government land sales.

Instability in the property market last year caused a -20.6% drop in government funds.² Thus, if the real estate market can just stabilize this year and land sales clock in flat growth, then it’s feasible to see a much stronger government contribution to growth.   

On the expenditure side, the government plans to increase spending by 5.5%, which is still noticeably lower than spending growth patterns in pre-COVID years. In fact, fiscal spending is expected to drop to 30.7% of GDP from 31.1%, which is the lowest since 2012.²

Growth to come from consumption-led recovery

One area that the government is expected to dial down spending is in infrastructure investments. As the economy faced challenges last year, policymakers juiced fixed-asset infrastructure investment growth to around 11.5%.²

As the economy steams ahead, I believe the government is likely to step off the infrastructure investment gas pedal and growth will be around half of last year.

With the fiscal impulse essentially neutral from last year, growth is broadly expected to come from the consumption-led recovery that continues to trudge forward.

High frequency indicators continue to improve, and the most recent monthly Purchasing Managers' Indices (PMIs) came in much better than expected.