China sets 5% GDP growth target for 2023

China’s outgoing Prime Minister Li Keqiang, in his Government Work Report, presented to the 14th session of National People’s Congress (NPC) on Sunday, set the goal of GDP growth for 2023 at 5 per cent. It is seen as a modest and achievable growth rate after the 3 per cent growth rate in 2022, the lowest in 20 years. The second largest economy of the world has been facing economic troubles ever since the COVID-19 disruption of 2020-21, and the zero-COVID policy of 2022, which had to be withdrawn in December 2022 in the face of popular protests against the pandemic restrictions.

China has also been confronting an adverse political climate with the United States, as a negative border situation with its biggest neighbour, India. The global economic situation has been critical in the COVID-19 and post-COVID-19 years, and it has been made worse by the war in Ukraine which broke out when Russia attacked Ukraine last February. Li, in his speech to the Chinese parliament, drew a grim picture of economic prospects. He said, “Global inflation remains high, global economic and trade growth is losing steam, and external attempts to suppress and contain China are escalating.”

And the Chinese prime minister acknowledged the challenges on the home front. He said, “At home, the foundation for stable growth needs to be consolidated, insufficient demand remains a pronounced problem, and the expectations of private investors and businesses are unstable.”

It is in these circumstances, that the economic projections for 2023 have been made. China wants to create around 12 million urban jobs in 2023 compared to the 2022 target of 11 million jobs. The fiscal deficit is to be maintained at 3 per cent, up from last year’s 2.8 per cent. The government wants to increase the incomes of the lower income group and bring them into the middle class. The expenditure on infrastructure is being channelised through local government bonds of $550 billion (3.8 trillion yuan). The bonds brought in 3.65 trillion yuan last year. The defence spend has increased from 7.1 per cent last year to 7.2 per cent in 2023. The step-up in targets is small and gradual, and the thinking seems to be that it is better to have achievable lower targets than make grand gestures about growth and expenditure rates.

Many of China-watchers seem to believe that the rapid growth witnessed in the last 40 years has now irretrievably slowed down, and China will not experience fast growth again. There are not both political and economic reasons for this. The United States and European Union (EU) countries have realised during the pandemic breakdown of supply chains with China as the primary source, and they want to stabilise the supply chains by diversifying the source. The Western countries are looking to China and other Asian countries like Vietnam, Thailand and the Philippines as alternative investment and manufacturing destinations.

The political reason for confronting China on human rights issues and its economic support to Russia in the war in Ukraine has created ideological polarisation, with Russia and China on the one side and Western countries on the other, resembling to an extent the old Cold War formation.  And the Western strategy to contain China includes decreasing Western dependence on Chinese manufacturing. That is why, on the most contentious issue of Taiwan, Prime Minister Li adopted a more conciliatory note of improving cross-straits relations with Taiwan and work towards peaceful reunification of Taiwan with mainland China. Li Qiang, a Xi Jinping loyalist and Shanghai communist party head, will replace Li Keqiang. But political changes will not alter the economic and political challenges that China faces this year and the next.