Exclusive: China increasingly ambitious with 2023 growth targets, could target up to 6%

BEIJING, March 2 (Reuters) – China is becoming increasingly ambitious with its 2023 growth target, aiming for potentially as high as 6%, in a bid to boost investor and consumer confidence and build on a promising post-pandemic recovery, sources involved in policy discussions said.

Four of the sources said China is likely to aim for growth of up to 6%, while three others said China is targeting 5-5.5%. They all spoke on condition of anonymity as the discussions were held behind closed doors.

Overall, these numbers point to growing optimism in Chinese policy circles compared to November, when government advisers recommended more modest targets of 4.5% to 5.5%.

The earlier recommendations were issued weeks before China lifted the world’s harshest COVID-19 curbs. Recent data showed that the economy recovered from the pandemic shock at a better pace than expected.

The final growth target, which could be a range, will be announced on March 5, at the start of China’s annual legislative session.

“This year’s growth target could be 5-6%,” said one of those involved in the discussions. “We need to achieve an economic recovery, increase employment and confidence, these are the key factors we need to consider.”

One of the three sources advocating a more modest target warned “the real estate sector is still falling and it is difficult to fill the gap while foreign trade is likely to drag on economic growth this year.”

None of the seven sources are involved in the final decision-making process.

The government is also set to unveil more stimulus during this month’s National People’s Congress, to cushion the impact of property market weakness and slowing global demand for exports, four of the people said.

To spur growth, the government is expected to increase its annual budget deficit to about 3% of gross domestic product this year and issue about 4 trillion yuan in special bonds to support investment spending, they said.

The new economic leadership team, which is expected to be led by former Shanghai Communist Party chief Li Qiang as China’s new premier, is keen to demonstrate its ability to deliver better economic growth to create more jobs and ease the funding burden on local governments, they said four.

BIG MISS

China’s economy grew by 3% in 2022 from a year earlier, badly missing the official target of around 5.5%, as the COVID-19 pandemic, stress on the property market and slowing global demand took a toll. Apart from 2020, when the pandemic started, it was the worst performance since 1976 – the last year of Mao Zedong’s decade-long Cultural Revolution that destroyed the economy.

It was also the biggest miss of a growth target ever. China previously had only small deficits during the Asian financial crisis in the late 1990s and during a currency crisis in 2014-15.

The last time China set a target range was in 2019 of 6-6.5%.

Some economists argue that ambitious annual growth targets in China are counterproductive, and policymakers should instead focus on structural reforms to improve the sustainability of any economic expansion.

High targets have previously pushed local governments to embark on expensive infrastructure projects, which have contributed significantly to China’s overall debt of almost 300% of economic output.

Three of the sources also said China will stick to its long-term inflation target of around 3%.

STRONG START

Consumption and services are leading China’s recovery so far this year. Manufacturing activity also rose at the fastest pace in more than a decade in February, an official survey showed on Wednesday, beating expectations.

Iris Pang, chief economist for Greater China at ING, said in a note that this week’s positive data gave the government strong reasons to set a high growth target of 5.5% to 6%.

On March 5, outgoing Premier Li Keqiang will deliver the government’s work report for 2023, which includes key economic targets and policy priorities.

Li was quoted by state media on Wednesday as saying the government is still changing the labor report.

“This year’s growth will be higher than 6%, which is not high considering last year’s low base,” Yu Yongding, an influential government economist who previously advised the People’s Bank of China, told Reuters.

Yu said a growth target above 6% would help “boost morale and stimulate China’s economic growth potential”.

Reporting by Kevin Yao; Editing by Marius Zaharia and Shri Navaratnam

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