MNI: China’s NPC To Target Growth Above 5% With Help From PBOC

China’s National People’s Congress is expected to unveil a growth target of over 5% powered by more fiscal spending and higher government debt, likely prompting the People’s Bank of China to commit to cooperating with the push to revive growth through ample liquidity supply and targeted tools, policy advisers and economists told MNI.

The NPC, which starts on March 5, is the flagship event for China’s government to lay out its policy stance for the year, with outgoing Premier Li Keqiang set to deliver the 2023 Government Work Report that will reveal the growth target, fiscal deficit ratio, inflation target, employment and quota for government debt.

The GDP target is likely to set above 5%, compared with a target of “around 5.5%” and an actual outcome of 3% in 2022, and the PBOC is expected to flag its commitment to prudent monetary policy with an easing bias, said Lian Ping, chief economist at Zhixin Investment. He forecasts the economy will grow above 5.5%, with a recovery in consumption and the property sectors the main contributors.

A consumer rebound, a bottoming property market and stable investment is expected to drive a robust rebound back to China potential growth rate of 5%-6%, diminishing the need for massive stimulus given leverage, encouraged by expansionary fiscal policy, has risen at a rapid rate over the past three years, he said.

Monetary easing will focus on targeted relending tools for key sectors, but the use of broader easing tools - such as cuts to policy rates and the reserve requirement ratio - may be limited, Lian said. (See MNI INTERVIEW: PBOC Should Avoid Excessive Easing - Huang)

MORE TARGETED TOOLS

The PBOC should launch more targeted tools to work jointly with fiscal authorities to support key sectors and guide down mortgage rate, said Zhu Baoliang, chief economist of the National Information Center, a government think tank. He called for the central government to increase transfer payment to help local governments issue consumption coupons, support industries, and provide subsidies to ensure a sustainable growth recovery.

The NPC is expected to reveal fiscal measures that will be more forceful this year to boost investment and consumption via increased spending and higher quotas for local government special bonds (LGSBs).

The fiscal debt/GDP ratio could climb to 3%-3.5% from 2022’s 2.8%, said Zhao Quanhou, director of the Financial Research Center at the Chinese Academy of Fiscal Sciences under the Ministry of Finance. The quota for LGSBs could be set around CNY3.6 trillion to CNY4 trillion compared with the CNY3.65 trillion quota targeted in last year’s Work Report, but which totalled CNY4.15 trillion by the end of 2022.

Authorities are expected to expand the category of projects that can be funded through LGSBs and enhance the role of policy banks and state-owned companies in shoring up infrastructure investment, Zhao said. He anticipates the central government will strengthen its support considering households, companies and local governments suffered balance sheet recessions due to the blow from three years of pandemic controls. (See MNI: China’s Policy Banks Need Capital Boost In Growth Push)

China front-loaded over CNY2 trillion of the 2023 LGSB quota in December and will make more transfer payments to local government to support education, medicine and vulnerable groups, he continued.

INFLATION TARGET

Advisors said a continuation of the 3% inflation target would be appropriate even though the actual Consumer Price Index would print at around 2.5% in 2023, while producer prices would remain weak.

M2 would expand by around 12% in 2023, a bit higher than the nominal GDP, and the PBOC will ensure ample liquidity to enable lenders to buy government bonds, said Xu Hongcai, deputy director of the Economic Policy Commission at the China Association of Policy Science. Zhao said there may be more room for monetary policy in the second half of 2023 should the Federal Reserve pause its hikes and domestic demand remained soft.

The Work Report is expected to support sectors that are key to national strategy and medium and long-term structural reform, such as the high-tech sector and modernisation of manufacturing, Lian said. It could also encourage local governments to be more proactive in assisting property markets though lower downpayment ratios and providing support for rental houses, Lian continued.