MNI INTERVIEW: China Can Grow Above 6% On Rising Investment

China is likely to deliver growth above 6% as robust investment compensates for lackluster consumption struggling to return to pre-pandemic levels, with the uncertain outlook for external demand requiring policymakers to remain flexible in adding stimulus, a prominent economic adviser told MNI.

China’s actual growth rate in 2023 could be one to two percentage points higher than the “around 5%” GDP target announced by Premier Li Keqiang on Sunday, translating to average growth across 2022 and 2023 of over 4.5%, said Tang Min, an expert advising China’s government, in an interview. He said average growth over the two years was a more meaningful measure given the shock caused by Covid. (See MNI: China’s Prudent Targets, Stimulus Show Risks To Recovery)

“Even though the GDP target is conservative, the final outcome is likely to be better, particularly in the second half of the year when the comparison base is low,” he said, highlighting the significant 8.1% jump in GDP in 2021 when the target was set at “around 5.5%”. “But considering exports will be weak this year, it is hard to see growth over 7%,” he predicted.

Private sector sentiment will recover at a gradual pace after the hit from the pandemic, meaning government spending on investment and consumption will take the lead gradually in driving growth, Tang said.

INVESTMENT LEAD

Local governments will accelerate investment after the “two sessions” provided clarity on China’s deficit and quota of local debt issuance, with the funding allowing projects – including some cited in the 14^th Five Year Plan - to be front-loaded in the first half.

“Investment, largely led by government, will still take a leading role in the current development stage of China, so when the economy gets cold, government investment must be boosted and leverage the private sector as global economies slow down,” Tang said.

Consumption would enjoy a rebound rather than a surge, Tang said. “It would be satisfying should consumption recover to the level of the normal years before the pandemic, but big stimulus for consumption would overdraw from future spending if household income does not rise at a fast pace,” he pointed out.

Without reforms to enhance wealth redistribution, the rise in household income was unlikely to exceed the pace of GDP growth, he said. Reforms to lift incomes of workers is a medium and long term task as it is key to the government’s “common prosperity” agenda.

PEAK PROPERTY

Premier Li flagged the government’s intention to “prevent unregulated expansion in the real estate market” in the Work Report for the first time, and stressed “mitigation in high-quality, leading real estate enterprises” in terms of managing their financial risks.

Tang said the property market is recovering due to strengthened policy support and improving buyer confidence, but the peak of the sector has passed. “The time that developers and local governments made a fortune from the sector has ended,” he said.

Housing policy would insist on President Xi Jinping’s edict that “housing is for living in and not for speculation” as global experience had shown risks posed by property bubbles were significant and that they finally burst, he warned. The “good developers” will benefit from policy, but the “bad ones” will likely be merged or bankrupted, including some of the bigger troubled ones, Tang said.

“We have carefully studied the housing policy in Singapore where the real estate market consists of two parts, government-subsidized low-cost house, which accounts for nearly 80% of total housing provided, and commercial houses which can be speculated on. China’s property market still has big potential in this pattern [of development],” he said.

Citing “urban village renovation” as an example, he said there were lots of villages that are included in the planning zones of big cities during urbanisation, but their conditions were lagging. Those governments could strengthen their renovation policies, which would boost investment and improve livelihood, and “kill two birds with one stone,” he suggested.