Article05 Mar 2024

NPC Stays the Course, So Are Investors

Asia Pacific Strategy

Expectations going into the NPC were muted, but there were still some lingering hopes for more effective stimulus.

Key Takeaways

  • China’s annual National People’s Congress (NPC) began on March 5th, with a work report from Premier Li. New targets for the economy were announced and were generally staying the course with 2023, but there lacked any signs of additional stimulus. The HK equity market reacted by selling off, while onshore equities made gains led by industries like utilities, staples and financials. Policies that could improve governance and final demand were not on offer so far at the NPC.
  • Even before the work report, media headlines focused on the cancellation of the press briefing by the Premier (Bloomberg). This had been an NPC feature since 1993, which was when China resumed market reforms after taking a break between 1989 and 1992. Removing this opportunity to explain the direction of economic work to the public may be interpreted as a further step away from market-based development, reducing expectations for effective stimulus even beyond the NPC.
  • Among the new economic targets, a notable change was the reduction of the budget deficit target from 3.8% in 2023 to 3.0% in 2024 (FIGURE 1). Even with the 1 trillion special long term bond issue, this basically removes any hopes that sufficient fiscal resources would be used to boost final demand. Compared to the nearly 10 trillion of additional central government debt raised last year, the size of this special bond seems more like a refinancing operation.
  • The GDP target remained at “around 5%”, while the job creation target stayed at “over 12 million”, with the unemployment rate at 5.5%. All three targets were achieved in 2023, but generated very limited impact on market sentiment. Notably, the 12mn target refers to gross job creation in urban areas, not a complete picture of the labor market.

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