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Setting the government’s priorities for this year, China has kicked off its “two sessions”, the annual meetings of the National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference, last Friday.
In the National People’s Congress first session, Premier Li Keqiang gave out the economic growth target for 2022, aiming for “around 5.5%” growth in gross domestic product (GDP). The primary tasks for this year, according to Li, are to “achieve stable macroeconomic performance and keep major economic indicators within the appropriate range and keep the operations of market entities stable and maintain job security by strengthening macro policies.”
The goal of 5.5% growth is the lowest in three decades. Last year China targeted 6% for 2022. Bloomberg Economics analysts see an intent to stabilize the economy in the lowered growth target.
J.P. Morgan Asset Management’s Global Market Strategist Chaoping Zhu sees more fiscal stimulus coming this year. “The annual GDP growth target of ‘about 5.5%’ is higher than the 4.0% rate realized in 4Q 2021 and also above market expectation for a growth rate of 5.2% in 2022, which suggests that stronger stimulus measures are expected to be implemented when the economy faces rising domestic and external uncertainties.”
Goldman Sachs analysts assess the GDP growth target as quite challenging, “barring significantly more policy easing, especially on the property front.”
China recorded an 8.1% GDP growth in 2021, marking a rapid comeback from the pandemic-related slump the year before. However, growth fell to 4% in the fourth quarter of 2021, the lowest since the second quarter of 2020. China’s pace of expansion sharply slowed in late 2021 as Covid-led movement restrictions affected production and consumption, and tougher regulatory controls dampened property sales.
Fiscal spending for stability
To ensure economic stability, China is planning to increase spending in 2022. At the same time, the government plans to cut the budget deficit. According to China’s parliament, the fiscal gap between general public income and expenditure will be $534 bn this year, 2.8% of GDP. In comparison, the 2021 deficit target was around 3.2%.
Total expenditures are projected to grow 8.4%, with a focus on national defence. The defence budget got a boost of 7.1% to $230 bn, up from a 6.8% rise last year. Li in his speech said that China “will continue the reform of national defence and the military and step up innovations in defence science and technology”.
To stimulate the real economy, China’s tax refunds and cuts will reach a record high this year, applying a new policy combination of tax cut and tax rebate. According to China’s 2022 Government Work Report (GWR) released on Saturday, tax reduction will amount to about $396 bn. About 39% are planned to benefit six sectors, including manufacturing and small businesses.
Premier Li also highlighted employment as the top challenge in 2022 and stated that China will create more than 11 million urban jobs this year, maintaining the urban unemployment rate below 5.5%.
