Investors are disappointed about the lack of detail from China’s legislature as Premier Li forecasts growth of “around 5%.”

China has set a challenging target for GDP growth this year “at around 5%” as its legislature holds its annual meeting that sets the tone for the rest of the year.

On the surface, the target seems achievable. It’s essentially unchanged from last year, when the target was a slightly more specific “around 5.0%,” with 2023 growth coming in at 5.2% in the end.

But we need to dig a little deeper into those targets. Last year benefited from coming off a low base because much of China was locked down for large parts of 2022, making for flattering year-over-year comparisons. That won’t be the case now.

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And any hopes for the Chinese economy to come roaring back to life after the Covid-19 pandemic have fizzled. A loss of corporate and consumer confidence, lackluster demographics, the trend toward “friendshoring” and difficulties deploying international capital across the Bamboo Curtain provide a pessimistic backdrop.

Given the strong headwinds blowing against the Chinese economy, not least of which is the gale of negative trends afflicting China’s property market, a 5% target for 2024 is “ambitious” in the eyes of Commerzbank. It will undoubtedly require stimulus that will need to be rolled out with better coordination among the various ministries and levels of government.

A ‘Very Challenging’ Mark to Hit

Providing that stimulus is a problem. Local governments are still staggering under the weight of debts run up during the costly, failed fight to eliminate Covid-19. Now those local administrations are hit by the reality that private developers have little to no appetite to buy land, one of the main ways that a local government raises funds.

Investment firm Nomura said it will be “very challenging” for China to hit the mark. The numbers for January and February have been lackluster. Beijing officials anticipate inflation of around 3.0% this year, which means nominal growth will need to run at 7.4% for 2024.

“Beijing should step up central government spending and encourage regions with relatively healthy balance sheets to increase spending as well,” the Nomura China economics team headed by Ting Lu wrote in a note to clients. The central government should expand quantitative easing, allow local governments to issue special bonds and refinance others to swap out hidden debt.

But the current budget leaves little room for such spending. What’s more, 12 Chinese provinces have been highlighted as high-risk, financially. The revenues of local government-managed funds, which last year raised 87.5% of their money from land sales, are budgeted to rise by only 0.1% this year.

“We believe this target is still overly optimistic,” the Nomura team noted, “considering the continued downward spiral of the property sector.” Those local-government funds saw revenues contract 10.1% in 2023, well below the target of 0.4% expansion.

In other words, all is not well, particularly at the local level. Beijing will need to figure out some way to turn around the loss of confidence in the property market, and in private developers in particular, which has led to a stalling of transactions as well as a negative wealth effect for property owners.

Premier’s Lower Profile

China has a history of hitting government forecasts, with most economists believing the data are “massaged” if the numbers don’t cooperate. But even Premier Li Qiang admits it is a lofty goal for 2024.

“It is not easy for us to realize these targets,” Premier Li said in delivering the forecast as part of the government work report to nearly 3,000 delegates in the Great Hall of the People in Beijing. “We need policy support and joint effort on all fronts.”

China’s legislature is holding its annual “Two Sessions” meetings this week, with the legislative National People’s Congress taking place alongside the advisory Chinese People’s Political Consultative Conference. The work report calls for the creation of 12 million jobs in urban areas, the highest target ever set, and maintaining the urban jobless rate at around 5.5%, although there were no specifics on how to achieve either goal. Defense spending will rise 7.2%, the same increase as last year.

For the first time since 1993, Li did not hold a news conference after delivering his speech. That downgraded the profile of China’s No. 2 official, with Premier Li also technically the highest-ranked civil servant in China. Beijing said Li will not give such a briefing during his five-year term, barring “special circumstances.”

No. 1 on all fronts, of course, is Chinese President Xi Jinping. Xi, who is also general secretary of the Chinese Communist Party, and he is calling on the legislature to develop “new quality productive forces,” according to the official wire service Xinhua. These high-tech initiatives should help upgrade traditional sectors to “high-end, intelligent and green industries,” although Xi said it is “necessary to prevent a headlong rush into projects and the formation of industry bubbles.”

It was Xi’s clarion call that “Houses are for living in, not for speculation” in 2019 that led to strict measures on credit levels for Chinese developers that were laid out in August 2020. With the property market now in free-fall, that phrase was omitted from the government work report for the first time since its 2019 inclusion.

Otherwise, there were pretty pictures painted of plans to boost growth, but no major structural reforms and no injection of stimulus. The Beijing government left its inflation target at 3%, same as every year in the last decade bar Covid-infected 2020, and left monetary and fiscal policy largely unchanged.

Investors are clearly disappointed by the lack of overt stimulus and market support. One economist called it a “target without a plan,” given the absence of moves to bolster consumption, turn falling wages around and address the deflationary period that China first entered as of last summer.

We can see the reaction most clearly in the Hong Kong market. The benchmark Hang Seng Index led the losses in Asia on Tuesday as the target was announced, with the Hong Kong market off 2.6% to a two-week low. Similarly, the Hang Seng China Enterprises Index of Hong Kong-listed mainland companies fell 2.6% and the Hang Seng Mainland Properties Index of Chinese developers fell 2.4%.

We also can see how the Beijing government would like to order the stock market to rise back up. Trading on Tuesday in mainland markets was masked by buying from state-owned funds, causing the CSI 300 blue-chip index of the largest listings in Shanghai and Shenzhen to rise 0.7%.

State-Supported Rally Doesn’t Last

But that’s window dressing directed by mainland administrators to make the government look good. It can’t and won’t last. The CSI 300 sank 0.4% on Wednesday with the state support removed. The Hang Seng, meanwhile, clawed back 1.7% on Wednesday on a day most Asian markets moved higher.

I was joking with an East Asia-focused fund manager that I’m waiting for Beijing to declare that from now on it only will allow investors to buy shares and never sell. The market would crash as everyone heads for the exits as fast as possible before such a new rule is imposed. While that’s a joke, I’m sure Beijing officials have considered something similar.

Chinese officials last month moved to curtail the ability to short stocks and to prevent quant funds from trading large volumes of stock that might disrupt markets. One prominent fund was barred from trading for three days for so-called “disorderly” trading. Securities regulators also told major institutional investors not to reduce equity holdings at the open and at the close of each trading day – effectively, a partial selling ban.

Economists, meanwhile, still forecast that China will miss its growth mark, with the World Bank forecasting growth of 4.5% for the mainland economy in 2024 and the International Monetary Fund predicting 4.6%.