China: China’s annual political conference announces cautious growth target and institutional overhaul
The 2023 GDP growth target is slightly below our Consensus Forecast.
The institutional overhaul aims to boost security and self-reliance, and will also concentrate more power within the Communist Party.
What happened: China’s annual “Two Sessions” political gathering took place in March. At the gathering, a 2023 GDP growth target of 5.0% was announced, below our forecasts for 5.1% growth. On the institutional front, a new financial regulator will be created to consolidate the responsibilities of different state bodies. A national data-management bureau will be established, and the science and technology ministry will be restructured in a bid to boost innovation, with a Communist Party commission to be established within it. The Two Sessions also served to confirm Xi Jinping’s third term as president, and to reshuffle top government leaders, with former Shanghai Communist Party Secretary Li Qiang appointed as premier (the head of the government).
The economic upshot: The reachable growth target suggests that major fiscal or monetary stimulus is not forthcoming, and the institutional overhaul shows that the government is prioritizing security, stability and self-reliance over maximizing economic expansion. The new financial regulator could reduce systemic risks in the banking sector, and the revamped science and technology ministry will likely channel more funds to the government’s favored sectors, such as semiconductors and defense. However, the large concentration of political power could increase policy unpredictability, weighing on private investment. Moreover, the top-down approach to boosting the nation’s science base may struggle to achieve the desired technological breakthroughs.
On technology, the EIU said:
“We are skeptical about the effect the new party-state institutions will have in spurring advanced innovation, given that inefficiencies in resource allocation are common in China’s top down industrial approach. The development of China’s semiconductor industry typifies this mixed record, given that the government’s concerns over import reliance have funnelled trillions of renminbi into state-led projects to develop domestic substitutes, but with little to show for it. Still, the flood of resources pouring into the sector should entail, in the lower-end segment, self-sufficiency and lower prices.”