J.P. Morgan On China's NPC

The US bank outlines it views for the upcoming NPC (Kicking off on March 5). It expects growth around 5%, but notes this will be difficult to achieve. It outlines stimulus measures on the fiscal/monetary side below.

• J.P. Morgan: "We expect the NPC will keep its annual growth target unchanged at “around 5%” in 2024, and economic policy will continue the growth-friendly policy stance as observed since August 2023, but not a bazooka-type stimulus. The policy tone has been pre-determined at the Central Economic Work Conference last December, and we see little chance of a major deviation.
  
  “Around 5%” will be a challenging task, given that 2023 growth printed at 5.2% but the reopening dividend has largely faded. To achieve the target, we have argued that both fiscal and monetary policy will be more growth-friendly than 2023.
  
  On the fiscal side, the NPC will announce budgetary items: official fiscal deficit and the quota of special local government bonds. Our forecasts look for a 3.8% of GDP budgetary deficit, which could be in the form of 3% official deficit plus 1 trillion yuan special central government bonds. In addition, we expect the quota of special local government bonds at 3.5 trillion yuan this year (vs. 3.8 trillion yuan in 2023).
  
  Several additional notes on the fiscal policy. First, the 3.8% (of GDP) budgetary deficit is the same as last year (3% deficit in March 2023, and additional 1 trillion yuan deficit approved in October) on face value. However, the actual budgetary deficit this year is higher due to carryover of 500 billion yuan out of the 1 trillion additional deficit last year, making the actual budgetary deficit last year at 3.4% of GDP and this year at 4.2%. Second, our estimate of augmented fiscal deficit (including off-budgetary items such as net land sales and LGFV borrowing) will only increase marginally by 0.1% of GDP (from 12.1% last year to 12.2% of GDP this year), due to fiscal contraction of off-budgetary items. Third, our forecast of 3.5 trillion yuan special local government bonds is on the conservative side; any number between 3.5 and 4 trillion yuan should be reasonable. If the actual quota of special local government bonds is closer to 4 trillion yuan, it will allow for more room to tighten LGFV borrowing, thus not necessarily likely to meaningfully affect our estimates of augmented fiscal deficit.
  
  On the monetary policy side, we expect the government will maintain its inflation target at 3% (a ceiling concept in practice), which is not binding as our forecast of average CPI this year is 0.6%. We expect the government will reiterate that the monetary policy will be flexible, appropriate and precisely targeted, that money supply and TSF growth should be in line with economic growth and inflation targets, and structural monetary policy will be strengthened to support targeted sectors."