The Government Work Report released at the outset of China’s 2023 Two Sessions congressional event has called for greater use of targeted monetary policy and driving growth in domestic consumption to help achieve a GDP target of around 5%.
Chinese policymakers have also flagged a focus on support for private enterprises, attracting more foreign investment, development of the digital economy, and greater adoption of green development models.
GDP target set at 5%, urban jobs growth at 12 million
The Government Work Report sets a GDP target of about 5% alongside a consumer price growth target of around 3%.
Xu Hongcai (徐洪才), deputy director of the Economic Policy Committee of the China Policy Science Research Association, said that the target of around 5% is “pragmatic and reflects policy stability and continuity.”
With regard to inflation, Xu points out that last year’s CPI increased by 2% in year-on-year (YoY) terms, and this year’s target of about 3% is also in line with actual conditions.
“The year-on-year increase in CPI this year may be slightly higher than last year,” he said.
Yang Chang (杨畅), head of the policy group and chief analyst at Zhongtai Securities, said that the GDP growth target of 5% for this year is “conducive to sending signals to promote the upward recovery of economic fundamentals, and gradually restoring confidence for credit expansion in the enterprise and household sectors.”
The Report also sets the target of urban jobs growth of around 12 million, and an urban unemployment rate of “around 5.5%.” This compares to a growth target of 11 millions new urban jobs in the 2022 report, as well as urban unemployment of “under 5.5%.”
Wen Bin (温彬), chief economist at China Minsheng Bank, said that the actual number of new jobs in China hit 12.06 million in 2022.
“Although the task is heavy and the pressure is high this year, there is still support [for the target.]
“On the one hand, following the continuous optimization of pandemic prevention and control, the services sector will continue to resume development and create more jobs.
“On the other hand, as the Internet platform economy, real estate development and other sectors receive policy support, more jobs will be created.”
Targeted monetary policy and use of structured instruments
The Report stresses the need for “targeted and vigorous monetary policy,” as well as the continued implementation of the structured monetary policy tools that have become increasingly prominent since the start of the Covid pandemic.
“A prudent monetary policy requires precision and force…[we must] maintain the growth rate of the broad money supply and the scope of total social financing to basically match the nominal economic growth rate, and support the development of the real economy,” the Report said.
“[We must] maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Zeng Gang (曾刚), director of the Shanghai Finance and Development Institute, said that Report this year is “relatively neutral” in terms of its articulation of monetary policy, and expects that monetary policy will continue to remain stable this year.
Wen Bin ((温彬), chief economist at China Minsheng Bank, said that Chinese regulators will maintain positive interest rates and a positive yield curve, while refraining from “flood style irrigation or large-scale withdrawal or release.” According to Bin, the necessity for further interest rate cuts in China is already on the decline.
In terms of quantitative policy, Wen sees the potential for continued use of cuts to the reserve requirement ratio (RRR) following its evolution into “a normalized liquidity control method”
With regard to structural tools, Wen said there is still room for their continued usage as part of efforts by Beijing to precision monetary policy that targets key sectors for credit growth.
Dong Ximiao (董希淼), chief researcher of China Merchants Union, forecasts that upcoming monetary policy will focus on the goal of “improving the accuracy and efficiency of serving the real economy.”
According to Dong, the focus on “precision” will mean a greater role for structural monetary policy tools, in order to increase support for “key areas and weak linkages,” and optimise the credit structure of the Chinese financial system.
Spurring domestic consumption growth
The Report stresses the restoration and expansion of Chinese consumption, in the wake of the disruptions caused by a renewed round of Civid-Related lockdowns in 2022. It calls for “stabilisation of large goods consumption [vehicles and homes] and promoting the recovery of consumption of daily life services.”
Chinese policymakers are looking to household income growth as a chief means of spurring expansion in domestic consumption. The Report calls for “[using] multiple channels to increase the incomes of urban and rural households.”
Xu Zhaoyuan (许召元), deputy director and researcher of the Industrial Economics Research Department of the Development Research Center of the State Council, said that it is necessary to more efficiently spur widespread growth in Chinese household incomes.
“Firstly, we must focus on promoting the improvement of labor productivity in the manufacturing industry and driving steady increases in labor remuneration,” Xu said.
“Secondly efforts must be made to expand employment, and finally, we must continue to promote accompanying protections in related fields, and in particular to promote improvements to social security in areas such as education, healthcare, and pensions, in order to resolve household concerns about consumption.”
Support for Chinese private enterprise as part of the “Two Unwaverings”
The Report flagged support for private enterprises in China by reiterating the central government’s commitment to the “Two Unwaverings” (两个毫不动摇) policy that was first floated by the Communist Party of China (CPC) in 2002.
The policy involves “unwavering consolidation and development of the state-owned economy” in tandem with “unwavering encouragement, support and guidance for the development of the non-state-owned economy.”
Zhou Lisha (周丽莎), research director of the China Modern State-owned Enterprise Research Institute at Tsinghua University, said that state-owned enterprises are “an important material and political foundation of socialism with Chinese characteristics, and the private economy is an important part of the socialist market economy with Chinese characteristics.”
“The ‘Two Unwaverings’ is conducive to the mutual promotion of the public and non-public economies, learning from each other’s strengths, and thus stimulating the vitality of a range business entities, and jointly promoting the deepening of reform and innovation,” he said.
Li Jin (李锦), chief researcher of the China Enterprise Research Institute (中国企业研究院), said that the Report’s commitment to the “Two Unwavering” is conducive to stimulating the vitality of business entities and “building a new market-based ecosystem for the joint development of the state-owned and private economies.”
Attracting more foreign investment
The Report calls for “greater efforts to attract and utilize foreign capital,” via means including “expanding market access, increasing the opening-up of the modern services sector and providing equal treatment to foreign-invested enterprises.”
The Report also calls for “actively promoting the joining of high-standard economic and trade agreements such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and steadily expanding institutional opening-up.
“[We must] effectively perform work to service foreign-invested enterprises, and promote the development of landmark foreign-invested projects.”
Shao Yu (邵宇), chief economist at Orient Securities, said to state-owned media that “greater efforts to attract and utilize foreign capital are a key measure for China to create a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles promoting each other.
“Promoting the implementation of foreign-invested landmark projects is conducive to enhancing market confidence, and can also fully demonstrate China’s determination to open up to the outside world at a higher level of the economy.”
China’s digital economy and green transformation
The Report gives greater play to China’s digital economy, as well as efforts to transition towards a green, low-carbon model development.
With regard the digital economy, the Report calls for “vigorous development of the digital economy, raising the level of normalized regulation, and supporting the development of the [Internet] platform economy.”
Huang Shalin (黄莎琳), senior vice president of Wangsu Technology said that the growth of China’s digital economy will involve both greater integration with the pre-existing tangible economy as well as greater emphasis on independent scientific and technological development in China.
“Firstly, there is the integration of the digital with the real, and driving the smart transformation of physical industries such as manufacturing and energy, in order to fully release the productive value of these traditional industries.
“Second is enhancing the vitality and key competitiveness of the digital sector and promoting the take-off of the digital economy by increasing independent research and development of core technologies.”
With regard to green development, the Report calls for “promoting the green transformation of the development model…in-depth promotion of environmental pollution prevention and control, strengthening the development of urban and rural environmental infrastructure, and continuing to implement major projects for the protection and restoration of key ecosystems.”
It also calls for “promoting the clean and efficient utilization of coal and technology research and development, and accelerating the development of a new energy system,” alongside “improvements to policies to support green development, the development of a circular economy, promoting resource conservation and intensive utilization, and promoting energy conservation and carbon reduction in key areas.”
Liu Tao (刘涛), vice president of Zhixin Investment Research Institute, said that the Report “thoroughly implements the spirit of the 20th National Congress of the Communist Party of China, puts green, low-carbon and high-quality development in a more important position than previously, and clearly puts forward the concept of ‘promoting the green transformation of the development mode.'”