China loves setting different goals along with a variety of plans. This year's "around 5%" GDP growth aim is the most immediate, yet it is up against challenges. Instead of using this measure as a mandatory goal as it once did, Beijing now views it more as a tool for planning. However, in order to maintain longer-term goals, like tripling the GDP per capita by 2035, a downturn is likely to force policy adjustments.
An impressive growth of 5.3% for the first quarter of this year prompted international banks to give out lots of bullish calls. For example, UBS just raised its estimate of China's growth in April from 4.6% to 4.9%. However, the same cohort of economists updated their prediction back to 4.6% in a research note that was released last week. The main cause of the mood swing is a more severe than anticipated decline in the real estate market. The positive effects of the Chinese government's package of policies to support the market, which included loosening lending regulations and enabling local governments to convert unsold properties to welfare housing, have also worn off.
More recently, the annual growth target of the State Council has made "around" its key word. If the headline number ultimately rises beyond 4.5%, that likely provides economic managers with sufficient leeway to claim they achieved the goal this year. Beijing also made it easier by not putting a cap on GDP growth in its 14th Five-Year Plan, which is set to expire in 2025.
However, back in 2021, President Xi Jinping declared that China may achieve its longer-term objective of doubling its economy by 2035. According to calculation, the world's second-biggest economy has to maintain growth at a rate of about 4.8% for 15 years in order to achieve this. It is a lofty order.
If it grows at a rate that is much less than 5% this year, Beijing will have missed two opportunities since 2022, when it gave pandemic control precedence over economic growth. Planners will want to prevent these bumps from turning into structural problems. The strength of their future policy responses, such as greater fiscal expenditure on welfare in order to stimulate consumption, will show how concerned they are about misses becoming more common.