Sat, July 13

Understanding Two Sessions Economic Targets for China in 2024

The full text of the Chinese government’s work report at the 2024 Two Sessions is approximately 16,900 characters long and covers a wide range of content, with the economic growth target being one of the key points. The report states that this year’s GDP growth target is around 5%, which aligns with previous expectations. The keyword is “confidence,” as the government hopes to instil confidence in the market. Achieving a 5% growth target this year will not be easy from a temporal perspective. Based on last year’s 5.2%, this year’s target is more challenging. Setting a 5% target aims to send a positive signal to the external world, indicating that policies will continue to intensify. Shenwan Hongyuan believes that reaching a growth rate of 4.5% to 5% this year would be a favourable outcome.

Employment Strategies at the Two Sessions

The economic goals of China 2024 Two Sessions have now shifted to employment issues. Okun’s Law, which describes the relationship between Gross Domestic Product (GDP) and the unemployment rate, indicates that as the economic growth rate increases, the price-to-earnings ratio tends to decrease. Reviewing the data from 2023: GDP grew by 5.2%, and urban employment increased by 12.44 million. This means that last year, a 1% increase in GDP resulted in approximately 2.39 million new jobs. According to this calculation method, a 5% growth forecast for this year would potentially create about 11.95 million new jobs. However, the government has set a target exceeding 12 million jobs. The implication of this statement is not straightforward. On one hand, it suggests exceeding the forecasted model’s expectations; on the other hand, the use of the term “exceeding” emphasizes this point. Last year’s phrase was “around,” but this year, “exceeding” is directly used to indicate that the government plans to implement more robust measures to support employment.

There is a deeper implication suggesting that this year’s unemployment situation is not particularly optimistic. According to data from the National Bureau of Statistics, the average urban surveyed unemployment rate in 2023 was 5.2%, a decrease of 0.4 percentage points from the previous year. However, this year’s target for the urban unemployment rate is set at 5.5%, which is an increase from last year’s actual rate of 5.2%. Logically, the rate should not be adjusted upwards; it should at least remain at the 5.2% level. Yet, it has been proactively raised by 0.3%, indicating that employment issues remain a significant challenge. The report also notes that over 11.7 million college graduates are entering the job market this year, underscoring the immense employment pressure. The setting of the unemployment rate target appears to be quite pragmatic, closely aligning with the actual situation.

Debt Management Discussions

Regarding addressing debt in 2024, Two Sessions highlighted two major challenges: local government debt and the real estate market. The original text mentions “treating both symptoms and root causes” to resolve risks associated with real estate and local government debt. The content of the entire article is not much different from what has been discussed before, such as the three main directions of fiscal policy mentioned in the report, especially concerning national bonds and special bonds. Notably, the scale of national bonds has reached 1 trillion yuan, while special bonds have an issuance volume of 3.9 trillion yuan this year. Overall, the strategy of increasing central debt to resolve local debt issues applies equally to both local debt and real estate risks, with stability being the key term. Many real estate media outlets have emphasized this point, but in fact, it is not worth excessive discussion. Firstly, real estate issues have not been mentioned in several important meetings before, hence the topic is no longer hyped. Secondly, there is no speculation in the current property market. Reviewing data related to the property market over the past two years, the sales area has always been above 1.7 billion square meters, but by 2022, this number had dropped by more than 400 million square meters to just 1.258 billion square meters. In 2023, it further decreased to only 1.117 billion square meters. There has also been a notable decline in the increase of mortgage loans: in 2021, the increment was 6.08 trillion yuan, which fell to 2.75 trillion yuan in 2022, a decline of 55%, and decreased by another 200 billion yuan in 2023 to only 2.55 trillion yuan. This trend is actually expected. The future real estate market needs, on the one hand, to move stably towards Real Estate 2.0, and on the other hand, to ensure public welfare and timely completion of buildings. The underlying logic of some financial policy measures supporting real estate companies reflects this.

Compared to local debt and real estate, the government work report highlighted an important aspect: the construction of a modernized industrial system. This includes emerging and future industries, particularly the digital economy. Specific sectors mentioned are intelligent networked vehicles, new energy vehicles, emerging hydrogen energy, new materials, innovative pharmaceuticals, biomanufacturing, commercial aerospace, low-altitude economy, quantum technology, life sciences, big data, and artificial intelligence. Given the limited societal resources, if one area receives more support, others may see a reduction. Therefore, this year, these sectors are likely to become popular directions for development in the market, easier to obtain policy and financial support. For today’s youth, where do their opportunities lie? In a video, Fu Peng mentioned that young people should avoid competing with the older generation of capitalists and those born in the 1970s, as it is challenging to overturn their advantages in capital and connections. This advice holds some truth. For the 11.70 million college students graduating soon, they could consider these mentioned directions to choose their career paths.

Price Stability Policies at the Two Sessions

Two Sessions also focus on consumer prices. The Consumer Price Index (CPI) has reached a target increase of around 3%. At first glance, 3% might seem modest, but considering that over the entire year of 2023, prices only rose by 0.2%, a 3% increase now represents a significant rise. Examining the eight major categories of the CPI reveals that last year, the largest drop was in transportation and communication, which decreased by 2.3%. Education, culture, and entertainment increased by 2%, healthcare rose by 1.1%, clothing by 1%, housing remained stable with no increase or decrease, household goods and services rose by 0.1%, and food and alcohol by 0.3%. The question then arises: which category will bear the brunt of this 3% increase? To put it bluntly, a 3% increase means an overall rise in prices. Objectively speaking, during economic downturns, inflation is one of the methods used to stimulate economic growth. Theoretically, governments prefer inflation to deflation because inflation indicates economic activity, and increased money circulation, and businesses are more likely to expand operations. A 3% target aligns with previous strategies of stimulating consumption through moderate inflation. As prices rise, business sales and profits increase, encouraging businesses to expand operations and thus absorb employment. However, the premise for stimulating consumption and raising prices is that incomes must also rise. This report includes a significant statement: household income growth should keep pace with economic growth. While the laws of economics are irreversible and debts must eventually be paid, as a tangible tool in macroeconomic regulation, the goal is singular—to effectively manage countercyclical adjustments.