High Achievers

According to Yao Yang, a liberal arts professor at the China Center for Economic Research and the National School of Development, Peking University, GDP growth of 5 percent in 2023 is “the bottom line” if China is to achieve the target it has set in the 14th Five Year Plan (2021-2025) and 2035 Long-Range Objectives. Yao told NewsChinathat to achieve the 2035 objective, China needs to maintain an annual compound growth rate above 4.73 percent between 2021 and 2035. 　

During the three years of the Covid-19 pandemic from 2020 to 2022, China’s annual compound growth rate was 4.5 percent. If it fails to achieve at least 5 percent growth in 2023, it would be very hard to achieve the 2035 objectives, Yao said. 　

However, Yao said he is optimistic about China’s economic prospects for the year. His major concern is that a relatively low growth target may lead to tighter monetary policy. “China has a potential growth rate of 5.5 percent as the government shifts its policy focus to boost economic growth in 2023. The actual growth rate can exceed the potential growth rate, leading to an overheated economy,” Yao said. “2023 is a special year. The government should allow some overheating and refrain from tightening its monetary policy if the growth rate goes higher than 5 percent.” 　

Yao’s optimism is shared by Zhang Liqun, a research fellow at the department of macroeconomic research at the Development Research Center of the State Council. Zhang believes that China can achieve a growth rate of more than 6 percent in 2023. “[Despite the impact of the pandemic] the fundamentals of China’s economy remain strongenough to secure long-term growth,” Zhang told NewsChina. “As governments at all levels are now shifting their focus back to economic development, the growth potential of China’s economy will be fully unleashed.” 　

Zhang said that in the past months, the Chinese economy continued to see shrinking demand, supply chain disruption and weakened expectations. But as the central government launched policies to address these challenges in late 2022 and early 2023, the Chinese economy has shown strong growth momentum. 　

But in his first press conference after succeeding Li Keqiang to become China’s new premier held on March 13, Premier Li Qiang warned that achieving the five percent GDP target is not an easy task and requires “redoubled efforts.” 　

Playing down the importance of the GDP growth rate, Li said what people care more about are the things that happen in their own everyday life like housing, employment, income, education, medical services and the environment. 　

Liu Yuanchun, president of the Shanghai University of Finance and Economics, who advised in early 2023 that China should set its growth target at 5-6 percent, told NewsChina that the relatively low target of “about 5 percent” can help the central government counterbalance the more ambitious targets set by provincial governments. 　

In the past, provincial and regional governments competed to set more ambitious growth targets than the central government. In the past two months, all 31 provinces, autonomous regions, and municipalities in the Chinese mainland have released their own targets. Over two-thirds set growth targets at above 5.5 percent. 　

Eight aim to grow their economies by 6.5 percent or more. The most ambitious is Hainan, the smallest and southernmost province of the Chinese mainland, which set its growth target at 9.5 percent, followed by 8 percent in the Tibet Autonomous Region. 　

Liu said that setting the national growth target at a moderate level of 5 percent can guide provincial governments to seek more realistic and sustainable development and focus on the quality, rather than the quantity, of their growth. 

In doing so, it pledges that the government will strive to boost urban and rural incomes through multiple channels, to “stabilize spending on big-ticket items and promote recovery in consumption of consumer service,” and to provide “government investment and policy incentives to drive investment society-wide effectively.” Local and provincial governments have already started pushing the purchase of “big-ticket items” like vehicles and property. For example, Hubei provincial government is providing subsidies for vehicle purchases. 　

The work report put China’s deficit-to-GDP ratio at 3 percent for 2023, 0.2 percentage points higher than that in 2022, pledging to “enhance the intensity and effectiveness of its proactive fiscal policy.” 　

To expand domestic demand in 2023, it proposes allocating 3.8 trillion yuan (US$550 billion) for special-purpose bonds for local governments, 4.1 percent higher than in 2022. “Implementation of major projects set out in the 14th Five Year Plan will be sped up and urban renewal projects should also be launched,” said the report. 　

According to Zhang Liqun, because China’s manufacturing sector is reluctant to increase investment given shrinking demand amid the Covid-19 pandemic, the government should increase investment, including the infrastructure sector among others, to boost demand and help the business sector expand. 　

For Liu Yuanchun, increasing government spending will boost employment, which is key to promoting domestic demand. “The government needs to play a leading role in boosting investment in order to effectively drive investment society-wide,” Liu said. 　

Liu said in 2022, several provincial governments rolled out incentive packages, including tax waivers and financial subsidies, to boost new energy vehicle purchases. These measures may have a short-term effect in stimulating demand, but it will inevitably diminish. Other than focusing on specific industries, the government needs to adopt a holistic approach to boosting domestic demand, Liu added. This approach should go beyond directly boosting consumption, like giving coupons or stimulus, but also include indirect ways, such as tax reductions and increasing social security payments. 

“We should... create an environment in which enterprises under all forms of ownership can compete and grow with fair competition. Effective measures and policies should be rolled out to boost market expectations and confidence,” reads the report. The central government also vowed in the work report to protect the property rights of private enterprises, and to attract more private capital to major State projects. 　

In the past few months, the central leadership has repeatedly stressed the importance of addressing problems faced by the private sector. Following the high-profile annual Central Economic Work Conference held from December 15 to 16, 2022, Zhao Chenxin, deputy director of the National Development and Reform Commission, told media that authorities will step up efforts to remove barriers to market access, help businesses overcome difficulties and strengthen intellectual property rights protection for private firms. 　

In a meeting with private entrepreneurs and business representatives held on March 6 during the annual session of the Chinese People’s Political Consultative Conference (CPPCC), the country’s top political advisory body, Chinese President Xi Jinping again pledged that the government will help solve problems for private enterprises and entrepreneurs, so “they can have a free hand and concentrate on development without burden.” On March 13 new Premier Li Qiang again noted that the government will “continue to foster a market-oriented and law-based business environment in keeping with international standards,” and will “treat companies under all types of ownership as equals,” stressing that “our commitment in this regard is unequivocal and steadfast.” 　

According to Yao Yang, despite repeated pledges made by the central leadership in the past years to improve the business and legal environments, few private entrepreneurs have felt any major changes on the ground. “It [the policy pledge] has failed to translate into concrete results,” Yao said. “Not only do banks, most of which are State-owned, continue to favor State-owned enterprises (SOEs), local governments also still favor SOEs in their public procurement,” Yao added. 　

The result is that private companies continue to lack access to financial support, with many becoming sub-contractors of SOEs with only marginal profits. After three years of hardship under pandemic-related control measures, “it is really time for the central government to show its political will to ensure equal treatment of private enterprises and SOEs,” Yao said. 　

Wang Yukai, a professor of government administration at the CPC Central Committee Party School, said the problem now is how to translate policy pledges into detailed plans and concrete results. “Deepening reforms should continue to be at the very center of China’s policy agenda, and any barriers that prevent the market from playing a decisive role in the distribution of resources should be removed,” Wang said. 　

“Only when private entrepreneurs have confidence in the government’s policy and the future of the market can China’s private sector really take off,” he added.