Amid challenges, realistic 2024 GDP goal is key

Against the backdrop of heightened geopolitical tensions, global growth sluggishness and domestic economic transformation, the recently concluded Central Economic Work Conference called for efforts to pursue progress while ensuring stability, consolidating recovery through progress and "establishing the new before abolishing the old".

The tone-setting meeting, during which top leaders set economic targets for the following year, also encouraged the introduction of more policies that help stabilize expectations, growth and jobs.

China's GDP growth rate is expected to surpass 5 percent this year, which is a considerable improvement over 3 percent registered in 2022. This accomplishment is seen being made in the context of a sharp dip in the nation's real estate investment growth rate over the previous two years.

The economic drag from the property sector doldrums is expected to ease in 2024. Consumption growth should remain stable and exports are likely to rebound from negative growth. These elements will underpin the forecast that China's economic growth will see an improved performance next year.

Long-term constraints on the global economy include structural contradictions and huge levels of government debt, which make it challenging to escape from high volatility and low growth. In contrast to other major economies, China is in a better position and will play a more crucial role in maintaining global economic stability going forward.

It is anticipated that next year will see a downturn in economic growth in developed economies — such as the United States and Japan — with growth rates likely to be less than half of China's predicted upswing.

It is predicted that the 2024 global growth rate will drop to about 2.6 percent. China is therefore likely to continue to contribute roughly 30 percent of global economic expansion.

That said, China's economic transformation is imperative, with the long-term objectives being high-quality development and structural optimization. Because of the rapidly aging domestic demographics, the economy's potential growth rate may indeed shrink during this process. However, it is unlikely that China's overall growth advantages will fade away anytime soon.

The high-profile meeting identified six specific areas of focus, which suggested a thorough and profound understanding of current and future issues.

For example, demand was identified as a high priority and is currently being categorized as "lack of effective demand", emphasizing the necessity to give social security and household income enhancement higher priority.

Negative growth in China's producer price index, which measures costs of goods at the factory gate, has been attributed in part to "excess capacity in certain sectors". In this situation, it is necessary to address low expectations and increase confidence. Monetary and fiscal policies will also be important in whetting demand appetite.

Moreover, the meeting emphasized the need to guard against systemic risks, highlighting the importance of proactive risk prevention and control measures in light of potential hazards.

In particular, risks associated with property firms, local government debt and small and medium-sized financial institutions were deemed to be areas requiring active responses in the coming year.

In order to mitigate such risks, extending the scope of special bonds for project capital purposes can produce more economic gains and boost investment momentum. This approach guarantees continued government spending while encouraging greater investment from the private sector, ultimately driving overall improvement in economic performance.

There has been a discernible downturn in the growth rate of fixed-asset investments in 2023, especially in the real estate sector. However, leveraging effects can be brought to the fore by using special bonds as partial funds for infrastructure projects in order to quicken the pace of investment and achieve the goal of stable investment.

China currently has a substantial debt load as a result of the accumulation of local government arrears over time. Interest payments on this debt, which constitute about 2 percent of total fiscal revenue, point to a comparatively high debt cost.

China's central government does, however, have a comparatively low leverage ratio — only 21 percent — compared to other countries. Therefore, the government sector's overall leverage ratio is deemed reasonable, and involved risks are manageable.

The central government can continue to provide local governments with refinancing bonds in 2024, which will lessen debt burdens by substituting cheaper financing for high-cost debt. Therefore, it is believed that risk associated with local government debt next year will not be significant.

The 20th National Congress of the Communist Party of China has put forward the goal of establishing a modern industrial system, with technological innovation identified as the primary catalyst for its achievement.

China continues to strive to become a manufacturing powerhouse, even though it has already emerged as the world's largest manufacturing nation, with value-added manufacturing accounting for 30 percent of the world's total.

Significant advancements in technological capability are necessary to achieve high-quality economic development. Building a new generation of information technology and other growth engines will serve as long-term drivers for sustaining China's economic growth.

The recent meeting also highlighted the need to deepen reforms in key areas, injecting strong momentum into high-quality development.

Among entities utilizing various types of ownership, the private sector is the biggest in terms of scale, employment contribution and economic value generated. Thus, efforts to both unswervingly consolidate and develop the public sector — while encouraging, supporting and guiding development of the nonpublic sector — are crucial for encouraging economic vitality, stabilizing and growing employment while promoting private investment.

Meanwhile, reforms, mergers and reorganization of State-owned enterprises must be advanced to make them stronger, thrive and expand. Additionally, State-owned equity must be better mobilized to raise SOEs' valuation levels and scale up the country's fiscal revenue.

A new round of tax and fiscal reforms should be advanced with the goal of addressing the country's secondary distribution of income. It is anticipated that these reforms will be essential in changing the way household income is structured and elevating incomes of middle- and lower-income workers. They should also assist in addressing the issues of low economic expectations and lack of effective demand.

In order to boost its share of global trade and draw in more foreign investment, China must remain committed to opening its doors wider to the world, providing greater facilitation, and benchmarking against international standards.

Enhancing China's standing as the world's largest industrial and supply chain hub is crucial as the country's labor cost advantages wane. To this end, steps should be taken to accelerate the development of new drivers of foreign trade, including expanding trade in intermediate goods, services, digital trade and cross-border e-commerce.

China is expected to successfully achieve its economic growth target this year, benefiting from a low base effect in the previous year and discrepancies between nominal and real growth rates.

However, as China looks ahead to 2024, it will face both internal and external challenges that need to be taken into careful consideration, prompting experts to call for a more thorough evaluation of adverse aspects.

Several scholars speculate that the GDP growth target for 2024 should be around 5 percent. The pace of economic growth is closely linked to both internal and external environments. Setting overly ambitious targets can lead to impulsive decision-making, while excessively low targets may hinder domestic circulation.

Therefore, setting the GDP growth target at 1.5-1.7 times the global GDP level is considered a reasonable and prudent approach based on historical data.

It is anticipated that nominal growth in exports will shift from negative to positive in 2024, thus better supporting GDP growth. Investment is expected to rise faster than it did this year, and consumption will continue to grow steadily.

It is suggested that the Government Work Report for 2024 set a minimum target for price stability. Although a ceiling of 3 percent has been historically applied to the consumer price index — a main gauge of inflation — it is proposed that a minimum limit of 1 percent be established in order to help boost expectations.

The writer is chief economist at Zhongtai Securities.

The views do not necessarily reflect those of China Daily.