By April Ma, Bloomberg Markets Live reporter and strategist
Chinese markets may come under pressure again on concerns that authorities will withhold stimulus after unveiling a conservative economic growth target that is below many investors’ expectations.
The consensus-lagging growth goal of around 5% for 2023, as Premier Li Keqiang outlined in a key address to open the National People’s Congress on Sunday, suggests strong monetary or fiscal help may be off the table for now. His last government work report at the annual parliamentary meetings also dampened hopes for more potent measures to ease an unprecedented property crisis.
“Frankly this number was not even in our possible scenarios,” said Li Weiqing, a fund manager at JH Investment Management Co., referring to the growth target. “I think this means that any anticipation for massive stimulus, either for real estate or for investment, is going to be seen as falsified, at least in the near term.”
The absence of more aggressive steps to boost growth threatens to weaken the momentum of a nascent rebound in Chinese shares last week following the release of robust manufacturing data. What may reshape market dynamics in the coming days will be potential sweeping changes to China’s bureaucracy and the lineup of a new Cabinet under Li Qiang, widely expected to be the next premier, as the political gathering continues.
Premier Li’s work report mostly repeated familiar official rhetoric from prudent monetary policy to maintaining a stable currency. The budget released on Sunday also suggests fiscal support will be restrained, with a mild deficit target increase and a special bond quota that heralds slower investments by local governments.
To be sure, some observers think Beijing has reasons to refrain from pursuing a more expansionary policy for now. “You need to take into account the fact that last year they fell vastly below target, so authorities want a more conservative target that is easy to reach without much effort this year,” said Hao Hong, chief economist at GROW Investment Group. “They want to avoid being overly aggressive.”
All eyes will now be on a suite of structural changes expected for government agencies, reforms designed to help the Communist Party consolidate its hold over the economy. Among them may be the revival of a powerful top-level commission that will further centralize financial policy formation. Fresh faces to be put in charge of the central bank and key ministries also will be keenly scrutinized.
“Given the complete reshuffling of the government, a key issue to watch in the next few months is how the new leaders will boost private sector confidence,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management Ltd. “This is more important than the fiscal and monetary policies, in my view.”