A confident posture

Ten take-aways from the Government Work Report

• The latest Government Work Report (GWR) adopts a more assertive tone, and more openly delineates Beijing’s vision for its position on the global stage.
• The language, tone and targets intend to project that the government is both ambitious and confident in the immediate and longer-term outlook, marking a departure from the emphasis, on how much hard work still lay ahead, made in 2023.
• Unlike last year, the GWR has sets an ambitious GDP growth target—despite the absence of beneficial base effects seen previously. This year’s targets, combined with the inflation target, imply a jump in nominal GDP growth to approximately 7.5% in 2024, up from 4.5% in 2023.
• The target suggests that robust economic support measures will be necessary to achieve a significant increase in nominal GDP growth, but no major economic adjustments or stimulus measures were announced. In fact, the GWR signals a smaller fiscal deficit, no material change in the scale of bond financing, and a slow-down in credit growth, which raises questions about the route to the target.
• The approach to boosting consumption remains largely unchanged, relying on trade-in programs and minor adjustments to social policies, which may not significantly enhance overall consumer spending, and incentivising employment. The policy mix is likely to continue to result in a shift in discretionary spending towards certain areas, such as automobiles, rather than boost overall consumption.
• This GWR confirms that to Beijing "domestic demand" is not simply a matter of boosting household consumption, but it is a dynamic interaction that encompasses both consumption and investment. Labour and capital are being redirected towards consumption-related sectors (healthcare and domestic tourism), but also investment-intensive sectors, such as wind power grids and advanced manufacturing.
• Given that manufacturing investment is the largest component of domestic investment, this is no surprise. Last year, this tallied a whopping CNY28tn in 2023, expanding by 6.5%, after 9.1% in 2022. Moreover, around one-third of manufacturing investment can be loosely defined as “advanced manufacturing”, which expanded by 29% in 2022 and 24% in 2023. Beijing realizes that should advanced manufacturing investment expand by 15% this year, it could generate around 1 pp of GDP growth.
• While the government will maintain some support for housing to ensure it doesn't become a systemic financial risk, housing was largely absent. Notably though, Premier Li omitted the phrase "houses are for living, not for speculation" (which was in the report in 2023).
• Beijing is maintaining its tight oversight of local governments, but also lowering debt costs and extending due dates. Interestingly, whilst last year the Ministry of Finance empowered provincial entities to issue refinancing bonds worth CNY1.5tn, intended to address the issue of "hidden debt", there was no announcement regarding additional support for these efforts within the current year.