Exclusive: China increasingly ambitious with 2023 growth target, possibly up to 6%

BEIJING, March 2 (Reuters) – China is increasingly ambitious with its 2023 growth target, with a potential of up to 6%, in a bid to boost investor and consumer confidence and build on a promising post-pandemic recovery, sources concerned in policy discussions.

Four of the sources said China is likely targeting growth of up to 6%, while three others said China is targeting 5%-5.5% growth. They all spoke on condition of anonymity as the discussions were held behind closed doors.

Taken together, those numbers point to increasing optimism in Chinese policy circles compared to November, when government advisers recommended more modest targets ranging from 4.5% to 5.5%.

The earlier recommendations were made weeks before China lifted the world’s strictest COVID-19 restrictions. Recent data showed that the economy recovered from the pandemic shock at a better than expected pace.

The final growth target, which may be a range, will be announced on March 5, at the start of China’s annual legislative session.

“The growth target for this year could be 5-6%,” said one of the people involved in the discussions. “We need to achieve an economic recovery, boost employment and confidence, these are the main factors to consider.”

One of the three sources arguing for a more modest target warned “the real estate sector is still falling and it is difficult to close the gap, while foreign trade is likely to put a damper on economic growth this year.”

None of the seven sources are involved in the final decision making.

The government also plans to unveil more stimulus at this month’s National People’s Congress to mitigate the impact of weakness in the real estate market and declining global demand for its exports, four of the people said.

To boost growth, this year the government is expected to increase its annual budget deficit to about 3% of gross domestic product and issue about 4 trillion yuan in special bonds to support investment spending, they said.

The new economic leadership team, expected to be led by former Shanghai Communist Party chief Li Qiang as China’s new prime minister, is eager to demonstrate its ability to deliver better economic growth to create more jobs and ease the financial strain on local governments, the four said.

BIG MISS

The Chinese economy grew by 3% year-on-year in 2022, well missing the official target of around 5.5% as the COVID-19 pandemic, real estate market stress and declining global demand weighed heavily on demanded a toll. Excluding 2020, when the pandemic started, it was the worst performance since 1976 – the last year of Mao Zedong’s decade-long Cultural Revolution that devastated the economy.

It was also the biggest missed growth target ever. China previously had only minor misses during the Asian financial crisis in the late 1990s and during a currency crisis in 2014-2015.

The last time China set a target range was in 2019 at 6-6.5%.

Some economists argue that ambitious annual growth targets in China are counterproductive and that policymakers should rather focus on structural reforms to improve the sustainability of any economic expansion.

High targets have historically pressured local governments to launch costly infrastructure projects, which have contributed significantly to China’s total debt burden of nearly 300% of economic output.

Three of the sources also said China will stick to its long-standing inflation target of around 3%.

STRONG START

Consumption and services are leading this year in China’s recovery. Manufacturing activity also grew at its fastest pace in more than a decade in February, an official survey found on Wednesday, beating expectations.

Iris Pang, chief economist for Greater China at ING, said in a note that this week’s optimistic data gave the government strong reasons to set a high growth target of 5.5% to 6%.

On March 5, outgoing Premier Li Keqiang will deliver the 2023 Government Work Report, which outlines key economic objectives and policy priorities.

Li was quoted by state media on Wednesday as saying the government was still amending the work report.

“This year’s growth will exceed 6%, which is not high given last year’s low base,” Yu Yongding, an influential government economist who previously advised the People’s Bank of China, told Reuters.

Yu said a growth target above 6% would help “boost morale and boost China’s economic growth potential.”

Reporting by Kevin Yao; Edited by Marius Zaharia & Shri Navaratnam

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