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China’s Economy Remains on Right Track

Mar 25, 2024
  • Zhang Yansheng

    Chief Researcher, China Center for International Economic Exchanges

Recent forecasts by international organizations have all but revised down China’s economic growth. The IMF predicts the country’s 2023-25 growth rate at 5.2 percent, 4.6 percent and 4.2 percent, based on assumptions of insufficient effective demand, inadequate endogenous growth momentum and muted macro policy stimulation. However, I believe that China’s economy will buck the trend and generate a new curve in which growth will reach toward 5 percent in 2024 and even beyond 5 percent in 2025 as it shakes off the lingering impact of the COVID-19 pandemic and returns to an appropriate range.

Chinese Premier Li Qiang delivered the Government Work Report at the opening meeting of the second session of the 14th National People’s Congress, in which it says that China’s general expenditures in 2024 will be 28.5 trillion yuan, an increase of 1.1 trillion yuan over the previous year. Ultra long special treasury bonds will be issued to provide sustainable financing for major construction projects, with 1 trillion yuan to be issued in the first tranche this year. China’s monetary policy continues to aim at maintaining reasonably sufficient liquidity. Government departments and local governments must enhance the consistency of macro policy orientations to ensure stable expectations, growth and employment.     

It can be expected this year that the Chinese government will introduce a combination of policy packages, not merely with the purpose of stimulating the economy but also to be solution-oriented, namely rolling out measures to comprehensively and systematically address the institutional, structural and aggregate development constraints and impediments in the quest for high-quality development. It will be guided by the principle that development is of overarching importance.

In the short term, the focus will be on addressing insufficient effective aggregate demand and achieving stable economic growth. In the medium term, the focus will be on stabilizing the real estate market (which is related to bulk consumption), advancing structural adjustments and supply-side structural reforms. In the long term, the focus will be on the development of advanced productive forces, driven by innovation and underpinned by high quality. This will ultimately elevate total factor productivity (TFP), alongside efforts to comprehensively deepen market-oriented reforms and forestall risks. All these efforts will ensure that China’s development is empowered not only by reasonable growth in quantity but also an effective upgrade in quality.

Back in July 1997, when the Asian financial crisis wreaked havoc, the Chinese government issued 660 billion yuan of long-term treasury bonds with tenor from 1998 and 2002, catalyzing a package of 3.2 trillion yuan for investment projects. This crisis response is also solution-oriented. It helped to solve the short-term problem of insufficient effective aggregate demand and stabilize investment and consumption growth, but it also facilitated the process of shutting down excess textile capacity, lifting state-owned enterprises out of difficulties within three years and reforming bank shareholding to introduce strategic investors for public listings.

In addition, it also served to promote structural adjustments and resource reallocation, as well as to support projects that improve the well-being of the people in such areas as transportation, municipal services, embankment, grain depots, garbage disposal and the restoration of farmland and grassland, among other long-entrenched problems. China ushered in a period of accelerated growth from 2003 to 2012.

In the coming new year, China will prioritize the transition from old growth drivers to new ones and accelerate the development of advanced productive forces across all sectors. One of the core indicators is the improvement of TFP. According to the research of Professor Liu Qiao of Peking University, China’s TFP as a share of the U.S. was less than 30 percent in 2000 but rose above 40 percent in 2014. It’s conceivable that it could reach 60 percent in 2035.

Meanwhile, the United States has stepped up the implementation of its re-industrialization strategy, featuring accelerated R&D investment in the field of chips and microelectronics, AI and quantum information, alongside the exercise of long-arm jurisdictions against China in high-tech and competition in capabilities. At the same time, China has shifted to a high level of self-reliance in science and technology and in comprehensive international cooperation, leading the development of a modernized industrial system driven by innovation.

China will focus on accelerating the development of advanced productive forces in six areas:

• Advance urbanization and integrate urban migrants into city life while enhancing the efficiency of resource reallocation.

• Develop a high-quality education system. This includes building first-class research-focused universities and upgrading the quality of vocational education.

• Expand high-level opening-up, primarily through alignment with high-standard international economic and trade rules, expanding institutional opening-up and attracting more foreign trade and investment.

• Promote high-level self-reliance in science and technology through efforts to comprehensively enhance our capability of independent innovation, improving the layout of the basic research system and enhancing the capability of original innovation.

• Deepen reform in a comprehensive manner and enhance the internal impetus for development.

• Leverage the scale advantages of China’s supersized market and complete industrial chain. All types of businesses, including state-owned enterprises, private enterprises and foreign-funded enterprises, will play important roles in the modernization process.

 China will also vigorously build a modernized industrial system. Its focus will be on science and technology innovation, modern finance, human resources and synergizing development of the real economy.

First, it will implement programs to upgrade the manufacturing technology system and promote the digital and green transformation of traditional industries.

Second, it will implement industrial innovation projects and promote the integration and cluster development of strategic emerging industries.

Third, it will formulate plans for the development of future industries and break new ground in frontier areas such as quantum technology and life sciences.

It can be concluded that China’s economy in 2024 will see a renewed round of make-or-break, at the local, and sector levels, as well as for individual enterprises. The ambition to innovate, change, transform and upgrade in adversity will unleash its untapped potential for growth. There is a broad consensus that China should run its own house well and make the best of this opportunity. There is every reason to look forward to a promising year for the Chinese economy in 2024.

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