China’s Premier Li Qiang announced on Tuesday that the country is targeting economic growth of around 5% this year. The announcement, made during the annual meeting of the National People’s Congress, emphasized a commitment to transform China’s development model, address industrial overcapacity, and manage risks in the property sector and municipal debt. Premier Li also indicated a rise in defense spending and conveyed a tougher stance on Taiwan. China’s post-COVID recovery has revealed structural imbalances, prompting calls for a new growth model.
The Premier’s work report outlined plans for stability, a proactive fiscal stance, and prudent monetary policy. The growth target takes into account employment and income considerations, as well as risk prevention. China plans to run a budget deficit of 3% of economic output, issue special ultra-long-term treasury bonds, and increase defense spending by 7.2%. The Premier dropped previous mentions of “peaceful reunification” with Taiwan and vowed to oppose separatist activities. China’s economic growth ambitions are expected to adjust in the future, with a focus on technological self-sufficiency and policy improvements supporting childbirth and the growing elderly population.
As China grapples with a demographic crisis, the state planner has pledged to improve policies supporting childbirth while raising benefits and basic pensions for the elderly. Despite tensions with the West, China remains committed to investing in tech innovation and advanced manufacturing, aiming for self-sufficiency in quantum computing, big data, and artificial intelligence. Beijing plans to lift all foreign investment restrictions in the manufacturing sector and relax market access in some service industries. Critics argue that China’s focus on high-tech manufacturing exacerbates industrial overcapacity, deepens deflation, and heightens trade tensions. The pursuit of speed in economic growth has given way to a change in the growth model, according to Hu Yuexiao, chief economist at Shanghai Securities.
