China Set to Reveal GDP Goal, Avoids “Bazooka” Stimulus at Annual Political Meeting

At this week's annual National People's Congress (NPC), China's most important political event, top policymakers are expected to unveil a moderate 2024 growth target near 5%. And measure pro-stability steps to aid the slowing economy. They appear poised to avoid the more forceful, debt-fueled stimulus some investors hoped for.

The stance comes as Premier Li Qiang delivers his first government work report on Tuesday, laying out economic priorities as the country grapples with headwinds like property market turmoil, capital outflows, still-high debt levels, and new deflationary pressures.

While matching 2023's GDP goal, hitting 5% would prove harder given the higher base of comparison. All eyes are on the strength of fiscal and monetary stimulus signals, plans to restructure away from housing-reliant growth, and consumption revival details.

Beijing’s policy stance will likely stay growth-friendly but won’t be a “bazooka-type stimulus,” JPMorgan Chase & Co. economists said in a note previewing the NPC. “The policy tone has been pre-determined at the Central Economic Work Conference last December, and we see little chance of a major deviation.”

A more ambitious target and pro-growth moves like maintaining the 3% inflation goal despite deflation would signal priorities, per Goldman Sachs. Key areas include:

Fiscal Support - After rising to a record 3.8% of GDP last year, the deficit may expand modestly to around 3.3% in 2024. Local governments have limited new borrowing space, meaning more direct central government bond issuance is required to fund infrastructure.

Monetary Policy - Officials will likely promise flexibility amid deflation. However, with debt still high, don't expect flood-like stimulus. Any shift away from the virus-era loose policy may spark market fears.

Housing Market - January saw the largest-ever cut to mortgage rates, but sales keep plunging, now 60% below 2021's peak. Signs of increased affordable housing, more developer support, or emergency accommodation could emerge.

New Growth Drivers - Officials are priming emerging sectors like electric vehicles, batteries, and clean energy to pick up property slack. But over-support risks waste, while angering trade partners. The balance is key.

Consumption Revival - Weak confidence has hit big-ticket item demand. New stimulus around cars and appliances looks likely. Upgrading technology and products should boost consumption quality and growth outlook optimism.

The work report's tone will hint if China is willing to stoke debt risks again to meet targets. While some deficit rise can aid stability, going too far may backfire longer-term. Muddling growth could continue either way.

Additional details and supporting evidence included:

China's deflationary pressures worsened as 2023 saw the longest stretch of nationwide falling prices since the late-1990s Asian Financial Crisis. Consumer inflation hit just 0.2%, far under the 3% target. Officials appear to have limited stimulus options to simultaneously achieve both growth and inflation goals this year.

Local governments face a growing debt burden, estimated by S&P at nearly $8.2 trillion last year, limiting their ability to borrow and spend more. Property tax trial expansion and state infrastructure fund drawdowns may help marginally.

New yuan loans to the manufacturing sector tripled in 2022 over 2021 as officials funneled credit into emerging high-tech industries. This risks wasteful over-investment if demand lags, while the US and others cry foul over perceived unfair competition from state aid.

Car sales cratered in January, falling 32% from a year earlier, led by a 43% plunge in passenger EV sales. Appliance sales also slowed over the Lunar New Year festival period per government data. Urgent stimulus may be unleashed to avoid 2002-level plunges.

So rather than shock-and-awe measures, the NPC looks set to reinforce China's balancing act - juicing the economy moderately without over-loosening, supporting housing gingerly avoiding a credit binge, transforming growth drivers methodically, and keeping an eye still on debt dangers.

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