- Growth target set lower than last year despite recent economic reopening.
- Property market, jobless rate, local government financing remain troublesome.
- Global economy may receive less help than expected from China—but also less inflationary pressure.
For the second straight year, China set its lowest annual economic growth target since 1991, with a 5% growth forecast that dimmed optimism for a rebound from the nation's second-weakest yearly growth in almost half a century.
Premier Li Keqiang announced the target at the beginning of China's annual legislative session, three months after the government began lifting stifling COVID-19 restrictions.
With those curbs in place, China's economy grew just 3% last year. Aside from 2020, when the country abandoned a growth target altogether during the height of the pandemic, the country had not produced growth that low since 1976, the last time its economy contracted.
Last year's growth also fell far short of the country's 5.5% target set at the 2022 legislative session. As pandemic restrictions abated, analysts and investors had surmised this year's target might increase.
'A New Era'
Instead, Li told the session on Sunday that "it is essential to prioritize economic stability" this year—another signal that growth no longer remains China's priority.
"It is a complete shift," Joerg Wuttke, president of the European Chamber of Commerce in China and a 32-year resident of the country, said late last year. "We just have to realize that the old notion of putting a premium on the economy—these days are gone. The agenda is self-reliance. We've entered a new era."
Even if China meets its 2023 target, it would mark the country's third-lowest year of growth—all in the past four years—since 1990, when the country's gross domestic product rose 3.9% on a real basis. China's economy has expanded every year since 1976, when GDP contracted 1.6%.
Mixed Economic Signals
Li set the target even after China's manufacturing, service, and construction sectors all rebounded substantially in the first two months of the year.
However, China's property market remains in a slump, and demand for Chinese exports has fallen, with analysts expecting low-single-digit growth on a percentage basis this year.
CCB International, a Chinese investment bank, said the "cautious" target likely reflects concern about the elevated jobless rate and problems with financing local governments struggling with the lingering effects of pandemic shutdowns.
China's unemployment rate is hovering near 5%, though many economists say official government figures underestimate the actual figure.
Global Economic Impact
The less-than-ambitious growth target suggests China's economy will provide more modest help than many expected for a global economy facing the prospect of recession—particularly as developed world central banks steadfastly persist with interest rate hikes to fight inflation.
At the same time, weaker growth from the world's second-largest economy may limit the global inflationary pressures that have necessitated those rate increases.
The target essentially matches the consensus projection for 5.1% growth of economists surveyed last month by Bloomberg. The Shanghai Stock Exchange Composite Index, up 7.7% this year and 15% in the past four months, fell 0.2% on Monday.