In 2024, a combination of falling consumption growth and declining real-estate investment is likely to impede Chinese GDP growth. If China is to meet its 5% growth target for this year, the government will have to offset these factors with more expansionary fiscal and monetary policy.
BEIJING – On March 5, at the opening of the annual meeting of China’s legislature, the National People’s Congress (NPC), Chinese Premier Li Qiang announced that the government’s target for GDP growth this year is around 5%. It is an encouraging target, but if China is to reach it, the government may need to adjust its policy approach.
Though China’s annual GDP growth reached 5.2% last year, it has been steadily declining, almost on a quarterly basis, since 2010. It does not help that China has been grappling with very low inflation and even deflation. The consumer price index grew by just 0.2% in 2023, while the producer price index shrank by 3%. This is in line with longer-term trends: Chinese CPI has been rising by less than 2%, on average, since 2012, and PPI has been in negative territory for the better part of the last decade.
The sooner China reverses these trends, the better. Otherwise, the cumulative impact of long-term structural factors like population aging, persistent “hysteresis effects” of past economic disruptions, and falling confidence will make it increasingly difficult – even impossible – to revive satisfactory growth. Fortunately, the window to robust recovery has not yet closed: with a more expansionary fiscal and monetary policy, China’s government can stabilize GDP growth at a higher level – around 6%.
BEIJING – On March 5, at the opening of the annual meeting of China’s legislature, the National People’s Congress (NPC), Chinese Premier Li Qiang announced that the government’s target for GDP growth this year is around 5%. It is an encouraging target, but if China is to reach it, the government may need to adjust its policy approach.
Though China’s annual GDP growth reached 5.2% last year, it has been steadily declining, almost on a quarterly basis, since 2010. It does not help that China has been grappling with very low inflation and even deflation. The consumer price index grew by just 0.2% in 2023, while the producer price index shrank by 3%. This is in line with longer-term trends: Chinese CPI has been rising by less than 2%, on average, since 2012, and PPI has been in negative territory for the better part of the last decade.
The sooner China reverses these trends, the better. Otherwise, the cumulative impact of long-term structural factors like population aging, persistent “hysteresis effects” of past economic disruptions, and falling confidence will make it increasingly difficult – even impossible – to revive satisfactory growth. Fortunately, the window to robust recovery has not yet closed: with a more expansionary fiscal and monetary policy, China’s government can stabilize GDP growth at a higher level – around 6%.