What to expect at this year’s NPC
Xiong Yi
China’s National People’s Congress will be held soon. Let’s look at the key announcements to watch for, including the government’s 2024 growth target, fiscal stance for 2024, property sector policy and government’s plan to stimulate consumption.
- 2024 growth target
The most important announcement to be made at the NPC is the government’s growth target for 2024. The growth target determines key policy variables such as fiscal deficit and credit growth. It now looks increasingly likely that the growth will be set at “around 5 percent”.
If growth target comes out at 5 percent, the impact on market sentiment will likely be positive. The magnitude of the positive impact will depend on what additional measures will be announced to justify an upward revision to growth.
Inflation target. The government has set its consumer inflation target at around 3 percent every year since 2015. Despite the low CPI inflation of only 0.2 percent last year, the government will most likely not make any changes to this target. But it is worth watching if the government will provide more comments on this inflation target.
- Fiscal policy
Fiscal policy is key to China’s growth in 2024. The government did a budget revision in late 2023 to accommodate 1 trillion yuan of infrastructure investment financed by central government borrowing. This move has raised the expectation of an expansionary fiscal stance in 2024.
The current expectation is that the government’s 2024 official deficit and local government special bond quotas will be broadly unchanged from 2023. Most likely, the government will announce: (1) an official budgetary deficit at 3 percent of GDP, unchanged from 2023 target; and (2) 4 trillion yuan of local government special bond quota, a slight increase of 0.2 trillion yuan in nominal terms but broadly unchanged in percent of GDP terms at 3 percent.
The expectation is that the government will announce more fiscal stimulus measures, which will likely come from a one-off special sovereign bond issuance. The total size of this special issuance will likely be around 1 trillion yuan.
Another assumption is that 80 percent of 1 trillion yuan additional CGB issued in Q4 2023 will likely be carried over for spending in 2024. The proceeds are for new infrastructure projects focusing on the prevention and mitigation of natural disasters.
Another fiscal measure is government housing investment funded by the PBOC’s PSL facility. In December 2023 and January 2024, PBOC activated PSL again to provide 0.5 trillion of funding to fund the government’s housing projects. The PBOC will likely reactivate the PSL again this year by another 0.5 – 1 trillion yuan, bringing total PSL funding to 1.0 – 1.5 trillion this year (0.8 – 1.2 percent of GDP). This would bring the total stimulus package to 2 percent – 2.4 percent of GDP.
- Property sector
A comeback in public housing projects can be expected in 2024 as policymakers seek new ways to stabilize and reshape China’s property sector. The government has taken various measures over last year aimed at stimulating housing demand, and is now reemphasizing government housing projects, including urban redevelopment projects, affordable housing and building emergency public facilities.
For the NPC, it will be key to watch if:
(1) the government will set national-level targets for its public housing investment in 2024. During 2015-18, the government had set clear annual targets of 6 million units per year on shantytown renovation projects. Such target-setting is important to guide government actions during the year.
(2) additional financing will be secured for public housing projects? Historically only a small portion of financing for public housing projects came from government budget. The bulk of financing came from bank financing, as well as from proceeds of land sales and local government special bonds. Bank financing will in turn depend on the PBOC, including its PSL facility and housing-related re-lending facilities.
- Other key policy and reform measures
Promoting consumption remains a priority of the government. The government has been planning an incentive program to encourage consumers to trade-in old products for the purchase of new products. The government may provide more details on the scale and coverage of this program at the NPC.
Equipment upgrade. The government is also planning to promote “large-scale equipment upgrade” to boost manufacturing sector investment and lift productivity. More details could be announced at the NPC on the size of the incentives and which industries will benefit.
Financial sector reform is gaining momentum after last year’s Financial Work Conference. Main priorities include the strengthening of financial sector supervision, reforming small banks to reduce their risks, reactivating the capital market, and further opening up the financial sector to encourage both foreign investors “coming in” and Chinese investors “going out”.
Opening up. The government is intensifying its efforts to attract foreign investors. It has promised to further open up market access to service sectors, resolve issues such as cross-border data flow and equal participation in government procurement, and remove obstacles to foreign visitors. We expect concrete policy announcements to be made at the NPC.
The writer is Deutsche Bank’s Chief China Economist
