A Chinese flag flies over the Great Hall of the People before the opening ceremony of the Belt and Road Forum (BRF) to mark the 10th anniversary of the Belt and Road Initiative in Beijing, China, October 18, 2023.
Edgar Su | Portal
This all leads to the question of whether Beijing will intervene with full support. So far the authorities have been relatively cautious.
Beijing signaled in December that any new policy support would be “appropriate,” said Wang Jun, chief economist at Huatai Asset Management, adding: “There is no way” the stimulus measures will be as large as in 2008. That comes from a CNBC translation of his Mandarin-language remarks.
China's economic policies are typically set by leaders of China's ruling Communist Party at an annual meeting in December.
This month's meetings, the so-called “two sessions”, are held at the government rather than party level and typically provide further details on policy plans, such as the GDP target for the year.
Wang said he was paying attention to comments on authorities' plans for the real estate sector, capital markets and local government finances.
In 2008, when the world was reeling from the financial crisis, China put together a massive stimulus package to maintain growth amid greater demand. While the economy recovered, the measures drew criticism as they led to an increase in local government debt.
Beijing has in recent years stressed the need to contain financial risks and curbed real estate developers' heavy reliance on debt for growth, a problem tied to local government finances. This time, China's monetary policy also faces restrictions on how far it can deviate from the US Federal Reserve's interest rate path.
The Chinese People's Political Consultative Conference, an advisory body, will open its annual session on Monday.
The session of the National People's Congress is scheduled to begin the next day. On Tuesday, the country's prime minister is also expected to announce the annual targets for GDP, employment and other economic indicators in the so-called “Government Work Report”.
“The target is likely to remain relatively high,” said Zong Liang, chief researcher at the Bank of China, noting that GDP grew 5.2% last year. That's according to a CNBC translation of his Mandarin-language remarks.
He expects the fiscal deficit target to be around 3.5% and that monetary policy will also be relatively loose.
China made a rare announcement in October that it would increase its budget deficit to 3.8% from 3%.
“We expect the fiscal deficit – which excludes special bonds, policy bank bonds and Local Government Financing Vehicle (LGFV) debt – to be set at 3.0% to 3.5% of GDP, up from the third quarter “Decreased .8% of GDP last year,” Louise Loo, senior economist at Oxford Economics, said in a report on Thursday.
“We expect the local government bond (LGSB) quota to rise slightly to RMB4.0 trillion from RMB3.8 trillion last year,” Loo said. “Authorities may also finally put pen to paper on the reported RMB 1 trillion in planned central government special bonds (CGSBs), reflecting the increasing role of central treasuries as part of an ongoing debt resolution process at local government entities this year.”
“The bottom line is that, unless there is a bazooka-like fiscal package, the additional fiscal stimulus this year is unlikely to be particularly large.”
The two sessions will also serve to publish the budget and discuss necessary policy changes and plans by delegates.
“Speeches from senior policymakers will be kept in mind, including interviews with key ministers such as the Minister for Industry and Information Technology, the Minister for Science and Technology and the Minister for Housing and Urban-Rural Development.” “These key ministers will provide various policies discuss in more detail,” Goldman Sachs analysts said in a report.
During parliamentary sessions, Chinese officials are also likely to discuss plans to boost technology and innovation, in line with a recent high-level call to strengthen “new productive forces.”
China's foreign ministers and prime ministers normally hold press conferences during parliamentary sessions, which typically end in mid-March. According to an official announcement, the advisory body will conclude its annual meeting on Sunday, March 10. The National People's Congress usually ends a day later, but no date has been confirmed yet.
Bank of China's Zong expects policymakers to send signals about opening borders or other business opportunities to foreigners, as well as improving the environment for non-state businesses.
However, announcing specific implementation details is typically left to individual ministries following high-level guidance from Beijing.
Direct support for consumption is unlikely, but broader measures to improve the social safety net would be of interest.
“On the demand side, the delayed Third Plenum [of the Chinese Communist Party’s Central Committee] (originally scheduled for December) suggests that longer-term demand policies – including tax, tax and pension reforms – may still be in the early stages of discussion but may still merit mention here,” said Loo.
This year's two sessions follow regular leadership reshuffles that have strengthened the ruling Chinese Communist Party's control over the government.
At last year's parliamentary session, Beijing announced an overhaul of financial and technology regulation by setting up party-led commissions to oversee the two sectors. Chinese President Xi Jinping, who is also the party's general secretary, has won an unprecedented third term as president.
No major Chinese government or party leadership positions are scheduled to change this year, while the U.S. is scheduled to hold its presidential election in November.
Since last summer, Chinese authorities have already announced a series of measures to boost growth and acknowledged the need to boost confidence. Critics say the measures are relatively selective.
Recent economic data releases suggest a mixed picture for growth, with some improvement in manufacturing but, at best, stabilization in real estate.
Huatai's Wang expects the economy to gradually recover this year and that nominal GDP will be better than real GDP, unlike last year. This means the perceived improvement this year will be more tangible for consumers and businesses.