NPC: What To Look For

Chinese Premier Li is set to unveil the country’s official 2022 economic targets on Saturday, via the Government Work Report.

• Sell-side consensus seemingly looks for a GDP growth target of 5.0-5.5%, with potential alternatives including “around 5.5%” and “above 5.0%.” Any of these outcomes would represent a markdown vs. the “above 6%” target set in ’21 (actual GDP growth sat at 8.1% last year).
• China’s COVID zero policy continues to present headwinds to domestic economic activity, with local lockdowns, port bottlenecks and a lack of tourism providing the major points of note. Still, recent days have seen growing speculation surrounding the potential for an adjustment in China’s COVID stance. An official has noted that China is looking for ways to reduce the “social costs” of its strict COVID zero strategy, although BBG sources suggested that the existing policy will “remain throughout 2022.”
• Most expect the fiscal deficit ratio to be left unchanged at 3.2%, although some look for a markdown to ~3.0%, or even 2.8%. Policymakers have pointed to the deployment of an “appropriate” fiscal deficit during ’22 in recent communique. Fiscal stimulus will likely become more supportive, as China battles the headwinds from the previously outlined economic issues that it faces. Particular focus is set to fall on infrastructure, in addition to continued support for electric vehicles and rural economies.
• Sell-side consensus looks for no change in the local government special bond issuance quota, which stood at CNY3.65tn in ’21. There is clear upside risk to this (none of the estimates that we have seen look for a move onto the CNY4tn handle).
• Elsewhere, there is little in the way of real discussion when it comes to China shifting its 3% inflation target (Y/Y headline CPI is running well below target at present, +0.9% in January, while PPI runs well above that level, +9.1% in January).
• China’s credit impulse has started to turn in recent months, after a precipitous fall in ’21. The credit impulse has a strong correlation with PPI (with a lag), which has pulled back from ’21 highs given the fall in the credit impulse during ’21. The recent acceleration in the commodity price boom may challenge that trend in the coming months.
• Monetary policy is set to remain accommodative, with most of the sell-side looking for further PBoC easing in H122, which is perceived to the window for such action given the pullback in PPI and expectations for the Fed to embark on a “series” of rate hikes, starting later this month. The PBoC’s switch to a more pro-growth stance has already seen some easing in early ’22. Still, the phraseology surrounding monetary policy should not move from “prudent monetary policy will be flexible and appropriate.”
• Policy towards housing is likely to be less restrictive, given worries surrounding the property sector and GDP growth slowdown. Indeed, some of the more notable property hawks in the policymaking sphere have softened their tone in recent weeks. The authorities will likely implement a less prescribed directive, allowing some variance in housing policy on a region-by-region basis to facilitate a soft landing for the sector. Still, the authorities will continue to be of the view that "housing is for living in, not for speculation," and we shouldn’t expect the housing market to be used as a short-term booster for wider GDP growth given the extensive rhetoric pushing back against such ideas. China needs to increase the availability of affordable housing, while the direction of travel re: the property tax trials will also be eyed (this matter may not even be mentioned, given the worry and cancellation of the expansion of the scheme).
• The unemployment target will remain somewhere in the region of 5.5%, with the government needing to facilitate social stability via economic assurance on a household level.