The Government Work Report delivered by Chinese Premier Li Qiang set the country’s 2024 GDP growth target at about 5 percent and the deficit ratio at 3 percent. These are reasonable goals.
First, they reflect the continuity and relative stability of policy. Last year, the GDP growth target was about 5 percent, while the actual rate surpassed it, at 5.2 percent. This year, local governments have set an average growth rate target of 5.4 percent, indicating that the central government’s target of “around 5 percent” is deliberately conservative.
More important, China needs not only to achieve the development goals outlined in the 14th Five-Year Plan (2021-25) but also pave the way for the medium-term development goals of its 2035 Vision.
A relatively low growth rate could disrupt the realization of these goals, but given the support of appropriate policies and the overall steady economic recovery from 2023, setting a growth rate of around 5 percent for 2024 is both necessary and feasible.
Second, China maintains a deficit ratio of 3 percent, in line with international practices. Last year’s deficit-to-GDP ratio of 3.8 percent was attributed to many special factors, such as dramatic adjustments in the real estate sector over the past two years and a significant decline in government land sales. This year's deficit target reflects a moderate intensification of China’s proactive fiscal policies.
The budget deficit stands at 4.06 trillion yuan, an increase of more than 100 billion yuan over 2023, and 1 trillion yuan in ultra long-term special government bonds have been issued by the central government, along with 3.9 trillion yuan of special bonds issued by local governments. Combined with last year’s fiscal balance of 500 billion yuan, the total sum exceeds 9 trillion yuan, accounting for a large proportion of the annual fiscal expenditure of more than 28 trillion yuan.
In short, fiscal policies designed to support economic growth are particularly prominent this year. Moreover, the issuance of 1 trillion yuan in ultra long-term special government bonds is not expected to leave a big impact on the market because of their extended duration, which eliminates the need to repay the principal in the short term. While the issuance of short-term and medium-term government bonds has been prevalent in the past, long-term bonds have now entered the scene, optimizing the structure of the bond market.
The Government Work Report has defined China’s policy goals and priorities for 2024, and high-quality economic and social development beckons.
Stimulate consumption
Considering residents’ insufficient willingness or ability to spend more money, the Government Work Report proposes comprehensive solutions to increase income, optimize supplies and reduce restrictive measures. The incomes of urban and rural residents have generally kept pace with economic growth over the years, but the existing wealth gap has restricted consumption by low-income groups. Raising incomes for rural residents and bolstering social security are the keys to overcoming the middle-income trap. Therefore, it is important to increase employment, encourage the development of micro, small and medium-sized enterprises, as well as private enterprises, and scale up reform programs. China today is marked by diverse consumption patterns and demands. Needs for basic necessities have been met, but there is a shortage of goods and services that cater to aspirations for a higher quality of life. As the aging population expands, demand for healthcare — particularly care of the elderly — is expected to rise, alongside a surging need for long-term care for disabled elderly people. However, supply in these fields is seriously deficient. After all, spending on healthcare knows no end. There is also a shortage of supply in such fields as culture, tourism, education, entertainment and sports, and investment needs to be channeled into these sectors to address the gap between demand and supply.
Expand profitable investment
It is crucial to focus on potentially strong areas of consumption and to cultivate new industries and economic drivers. In 2023, the debate over the significance of investment versus consumption garnered widespread attention. In this year’s report, they are placed in an equally important position. To expand domestic demand, investment and consumption must progress hand in hand.
Last year, investment in fixed assets grew by just 3 percent, dragging down the country’s economic growth. This year, the growth rate should surpass 4 percent. More important, investment needs to be efficient, profitable, and conducive to job creation. It must incentivize private and foreign investment to enlarge the multiplier effect. In essence, investment and consumption must complement each other and achieve a balance at a higher level.
Accelerate productive forces
During the transition to new growth drivers, the contribution of traditional production factors — land, labor and capital — is limited. This means that China should increase productive efficiency, identify potential drivers and leverage the power of innovation to achieve high-quality economic development. According to the concept of total factor productivity in economics, there is a need to promote efficiency while reducing energy and resource consumption through technological advancements, thereby ensuring a continuous increase in the quality of economic growth.
As a standard practice, the Government Work Report proposes targets aimed at reducing energy consumption and carbon emissions per unit of GDP. Thanks to the rollout of a series of policies and measures to promote scientific and technological innovations, China has witnessed steady progress in its innovation capacity in recent years. However, to narrow the gap with developed economies, it needs to boost investment in R&D, accelerate the development of human resources, modernize mechanisms and unlock the potential for economic development. Simultaneously, it needs to align with prevailing international standards.
Promote high-level opening up
China’s Ministry of Commerce made it clear recently that the country will accelerate its alignment with high-standard international economic and trade rules, specifically using the Comprehensive and Progressive Agreement for Trans-Pacific Partnership as a bench mark. For more than 20 years, cooperation under the WTO framework has stagnated. So has the Doha Round. However, new mechanisms of economic cooperation have emerged one after another, and new issues in the digital economy, service trade and climate response are difficult to resolve at the multilateral level.
China has applied to join the CPTPP and launched a series of measures to expand opening-up. Notably, all restrictions on foreign investment access in the manufacturing sector have been removed. Market access for foreign financial institutions in areas such as banking, securities and insurance have been widened, allowing 100 percent foreign ownership. In addition, China has unilaterally offered visa-free travel to nationals from some countries and has steadily reduced its negative list to enhance the business environment and has accelerated the development of free trade pilot zones and the Hainan Free Trade Port. These efforts signify China’s commitment to opening its door wider and making a greater contribution to the international community.
