China’s central bank on Friday pegged the country’s economic growth at five per cent, which is in line with the government’s target for 2023.
The central bank’s economic projection comes just days after the International Monetary Fund dubbed China a “bright spot” in the global economy along with India.
People’s Bank of China Governor Yi Gang added that the economy is stabilising while inflation remains low.
Analysts believe that the five per cent growth target is moderate and considers the uncertain domestic and global economic outlook for 2023.
“I’m afraid that reaching our growth target of around five per cent will be no easy task, and will require that we redouble our efforts,” China’s newly appointed premier Li Qiang sounded a note of caution on March 13.
Under China’s collective leadership led by President Xi Jinping, the premier (equal to a prime minister) is in charge of the country’s economic affairs.
The new premier’s worry is not unfounded.
China, the world’s second largest economy, grew by a meagre three per cent in 2022. It missed its official target of 5.5 per cent by a huge margin.
There was only one reason for China’s shocking economic performance last year – the stringent zero-Covid policy, which majorly impacted the manufacturing and services sector.
Chinese media reports show retail sales – a major indicator of consumer demand – fell by 0.2 per cent last year. Consumption contributed just 32.8 percent to the GDP growth, lower than 65.4 percent in 2021.
Real estate, another driver of China’s growth, tumbled 10 percent last year after one of the biggest real estate developers collapsed in late 2021.
China reported a record trade surplus in 2022, thanks to robust trade with sanctions-hit Russia, a weak Chinese Yuan and rising prices of goods. However, the impact of the global economic slowdown began to show in the final three months of 2022, when China’s exports declined for the first time since the pandemic began in early 2020.
The conservative growth target does not mean China has not rebounded from the zero-Covid policy lifted last year. One can already see the positive signs.
In the first two months of 2023, retail sales rose 3.5 percent compared to the same period in 2022.
The manufacturing sector expanded in March 2023, with the purchasing managers’ index (PMI) recorded at 51.9. A PMI higher than 50 shows the economy is expanding. The non-manufacturing PMI, which includes the services sector, rose to 58.2 in March – the highest since 2011.
In the same month, China’s exports rose by 14.8 percent compared to the same period last year, when the country was in the midst of the zero-Covid policy.
“China has rebounded – it’s coming along strongly again,” an IMF official told a Singaporean news channel this week.
However, he noted that China needed more reforms to manage its growth target for 2023. “But even for a country like China, the longer-term prospects have to be addressed through policy reforms,” he added.