Monday, April 15, 2024

China Stocks Soar to 3-Month Highs Amid Beijing’s 5% GDP Growth Target

HomeStock-MarketChina Stocks Soar to 3-Month Highs Amid Beijing's 5% GDP Growth Target

Beijing, China – At the annual “Two Sessions” meeting, China’s leaders laid out an economic growth target of around 5% for 2024, reflecting lingering concerns over high debt levels, weakening global demand, and ongoing pandemic challenges.

The modest goal of 5% growth, announced by outgoing Premier Li Keqiang, underscores the challenges facing the world’s second-largest economy as it emerges from three years of strict zero-COVID policies that stifled business activity and dampened consumer spending.

“The domestic economic environment is still extremely tough with many difficulties ahead,” Li warned delegates at the Great Hall of the People in Beijing. “Deeper reforms and opening up are needed to drive growth.”

While a 5% expansion would be robust by global standards, it represents a significant slowdown from China’s blistering pre-pandemic pace. In 2021, the economy grew 8.4%, its highest rate in a decade, fueled by a manufacturing boom and strong export demand.

However, China’s miraculous growth engine has sputtered in recent years, weighed down by President Xi Jinping’s harsh COVID-19 containment measures, a deflating property bubble, rising geopolitical tensions, and weakening appetites from major trade partners like the United States and Europe.

With youth unemployment hovering near 20% and economic momentum fading, Xi declared an “all-out” effort to kickstart stagnant growth during his nationally televised address on Sunday. The president said rebooting the economy would be the government’s top priority, along with boosting innovation, production, and incomes across both urban and rural areas.

“Development is of paramount importance,” Xi stated emphatically. “We must revive the core values of self-reliance and hard work to drive economic development.”

To catalyze economic activity, Beijing announced a slew of pro-growth policies, including over $570 billion in new tax cuts and rebates for businesses. The government also outlined plans to boost consumption through shopping vouchers, employment benefits, and increased lending to entrepreneurs and manufacturing sectors.

However, independent economists remain skeptical whether such stimulus measures can rekindle the torrid growth China has come to expect in recent decades, especially with Youth demand sagging and credit risks looming over the once high-flying property market.

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“The 5% target signals that China is bracing for a tough year ahead economically,” said Claudia Shui, an analyst at Nomura bank. “Purchasing power is weak, supply chains are still recovering from COVID disruptions, and global demand remains soft amid recession risks.”

Shui and her colleagues question whether surging military spending and rising geopolitical tensions could undermine China’s efforts to reignite economic momentum and achieve the 5% goal.

Defense Budget Hike Reflects Regional Tensions

Along with its economic blueprint, Beijing announced plans for a 7.2% increase in military spending for 2024, allocating over $292 billion for defense. While not a surprise given China’s growing geopolitical ambitions, the sizable budget increase was the steepest in four years and positioned China as the second largest military spender after the United States.

Speaking to reporters yesterday, a spokesman for China’s delegation said the additional defense funds would be used to “build a modern military force” and enhance the Chinese military’s combat readiness and capabilities. The budget hike comes just months after China’s dramatic escalation of military activities around Taiwan, which Beijing considers a breakaway province that must be unified with the mainland.

In response to China’s expansionist moves and military buildup, the United States has pledged deeper cooperation with allies and partners across the Indo-Pacific region. Just last week, President Biden hosted a summit with the leaders of Australia, India, and Japan — a quartet known as the Quad alliance aimed at countering Beijing’s regional influence.

For now, investors appear more focused on Beijing’s struggle to revive economic growth rather than tensions over Taiwan and the South China Sea. Mainland Chinese stock markets soared over 3% on Tuesday, hitting three-month highs, in reaction to the government’s goals and stimulus plans.

However, Hong Kong’s Hang Seng index tumbled over 2.6%, reflecting concerns over an exodus of capital and enterprises as Beijing cracks down on the financial hub’s autonomy.

Rebounding from COVID Lockdowns

Much of Beijing’s focus on boosting growth centers on reversing the damage caused by three years of harsh zero-COVID policies. Repeated lockdowns, quarantines, mass testing, and business stoppages upended daily life and brought some major cities to a virtual standstill for weeks at a time.

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After abruptly abandoning the controversial zero-COVID strategy last December, cases surged nationwide, causing widespread disruptions as workers fell ill and families grappled with caring for elderly relatives. However, the ruling Communist Party has forcefully declared that the pandemic is now under control and economic normalization is underway.

At the ” Two Sessions” meeting, Li Keqiang cited the lifting of COVID restrictions as a springboard for reviving consumer spending and business confidence. He emphasized that restoring normal production and daily life are top priorities, along with generating jobs to appease restless youth.

“Achieving our economic targets relies on businesses operating in an environment of political stability, employment opportunities, and income growth,” Li stated. “The impact of COVID must be completely overcome.”

However, many independent forecasters predict that China’s recovery from zero-COVID could remain bumpy and protracted. The abrupt reopening unleashed a tidal wave of cases that overwhelmed hospitals and crippled some key industries temporarily. Now supply chain bottlenecks, inflation pressures, and lingering effects of COVID on workers could constrain the revival.

Additionally, the ruling Communist Party now faces the daunting challenge of creating over 12 million urban jobs annually to absorb new graduates and migrants from rural regions. Youth unemployment remains frustratingly high at around 20%.

Environmental and Climate Goals

While economic resurgence was the dominant theme at the “Two Sessions” conclave, Beijing also restated its commitment to transitioning toward renewable energy sources and mitigating climate change.

In his address, Li reiterated China’s goal of achieving carbon neutrality by 2060 and building a greener economy. He said the country would accelerate development of wind, solar, nuclear, and hydroelectric power generation while also tackling pollution and conserving ecosystems.

However, few new concrete policies or investments were outlined beyond previous plans. And China remains heavily dependent on coal for electricity despite its climate pledges. The country’s overall emissions have continued rising annually.

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Providing affordable energy to sustain economic growth remains paramount for Beijing’s leadership. China still lags developed nations in per capita income and living standards. The Communist Party has made it clear that environmental goals cannot jeopardize the nation’s core economic priorities.

What’s Next for China’s Economy?

While much uncertainty remains, one constant prevails — the Communist Party’s firm control of China’s economic trajectory. In his address to the nation’s top political advisory body, Xi emphasized that the party’s leadership is “indispensable” for guiding development and implementing reforms.

Under Xi’s firm grip, Beijing charts a go-it-alone path, shunning Western-style democracy and free markets. The pandemic only accelerated Xi’s drive for an economic model of self-reliance fueled by state-led investment, tight regulation, and promotion of domestic technological innovation.

How the rest of the world responds to this insular model could shape China’s economic prospects in the coming years. The Communist Party leadership aims to vaccinate the economy against global economic shocks, sanctions, and supply chain disruptions by reducing reliance on critical imports and foreign markets.

But this attempt to decouple large segments of China’s economy from the West raises longer-term risks of decelerating productivity growth and missed opportunities from global integration and competition.

For now, Beijing seems focused squarely on the shorter-term challenge of achieving the 5% growth target for 2024. If successful, it would prolong the dizzying economic rise engineered by the Communist Party over the past four decades that has lifted over 800 million citizens out of poverty.

However, increasingly skeptical foreign investors and Chinese citizens alike are closely watching whether the party’s command economy policies can remedy the post-COVID malaise and structural drags on future growth. Even a modest 5% pace may prove difficult following last year’s stumbles. Realizing that growth rate could require unleashing deeper market-oriented reforms that China’s leadership has so far been reluctant to embrace.

Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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