China Sets Slowest GDP Growth Target In More Than 30 Years As Challenges Mount

China aims to grow its economy by around 5.5% this year, the slowest pace in more than three decades, as the country faces multiple challenges that stretch from weak consumption and repeated Covid-19 outbreaks to a slumping real estate market.

Premier Li Keqiang announced this year’s gross domestic product target during Saturday’s gathering of the National People’s Congress legislature, which kicked off on Friday and will last for almost a week. He also stressed the need to maintain stable growth, a top priority that now requires extra effort given the rising challenges.

“Our country will encounter many more risks and challenges, and we must keep pushing to overcome them,” Li said in his government work report.

Analysts have previously expected China to set its 2022 GDP growth target between 5 and 5.5%. The government is signaling more stimulus policies, especially in sectors such as consumption and technology, by actually announcing the number at the upper end, according to Shen Meng, director at Beijing-based boutique investment bank Chanson & Co.

What’s more, with President Xi Jinping expected to seek an unprecedented third term when the Communist Party gathers again this fall, maintaining a stable economic backdrop is a crucial task. Last year, the world’s second-largest economy grew 8.1%, surpassing the government’s target of over 6%.

“For one, Beijing has never dialed down GDP growth target more than 0.5% between two work reports,” says Feng Chucheng, founding partner at Beijing-based consultancy Plenum. “And this year, a more ambitious target helps guide expectation and boost confidence.”

“But with an underperforming consumer sector and a property market being regulated, 5.5% means more easing policy, and heavier infrastructure investment,” he added.

Some analysts, however, maintain a more pessimistic view. Aside from a rapidly cooling property market, which by some estimates contributes as much as a quarter of China’s GDP, Nomura economists led by Lu Ting also pointed to the “increasingly costly” zero-Covid strategy as one noticeable drag on growth.

“We maintain our 2022 annual GDP growth forecast at 4.3%, which we believe reflects the actual trend,” the economists wrote in a March 2 research note, adding that monetary easing policies implemented so far are “relatively tepid.”

China, in the meantime, has other issues to deal with. Covid-19 outbreaks in Hong Kong have reached a record high of almost 60,000 cases a day, overwhelming healthcare facilities and exacerbating a wave of emigration from the city. Russia’s invasion of Ukraine has roiled financial markets and led to surging commodity prices, with reports claiming that Xi is now rethinking China’s close friendship with Russia that his government once described as having “no limits.”