China’s modest growth target suggests authorities are comfortable with the current pace of recovery with the focus shifting to upgrading the quality of key industries, market watchers say.
(Bloomberg) — China’s modest growth target suggests authorities are comfortable with the current pace of recovery with the focus shifting to upgrading the quality of key industries, market watchers say.
Policy statements released during the National People’s Congress show the nation will prioritize growing the digital economy, achieving technology self-reliance and boosting the reform of state-owned enterprises. Meanwhile, the rhetoric around supporting the property sector was largely unchanged.
The 5% growth target for this year should be seen as a base line rather than a goal, according to some analysts who said investors shouldn’t be too discouraged. As the NPC continues, all eyes will be on a suite of leadership changes and a restructuring of government agencies.
Onshore Chinese shares, which had rallied ahead of the NPC on policy bets, retreated Monday. The CSI 300 fell as much as 1%, while a Hang Seng gauge of Chinese shares also declined. The offshore yuan underperformed in Asia with a loss of 0.3%. The yields on 10-year government bonds fell to a two-week low.
Here are some comments from market watchers:
Standard Chartered Bank (Becky Liu, head of China macro strategy)
So far, what’s released at the NPC probably isn’t enough to lead to either massively long or short position of Chinese risk assets, and people will likely to be patient and wait for more clarification in coming days before making major investment decisions.
Market positioning is now relatively light, with short CNY positioning likely washing out after the strong PMI numbers. The widening of budget deficit should be widely expected.
Commerzbank AG (Tommy Wu, senior economist)
Setting a modest growth target sends mixed signals — it gives incoming officials more room for maneuver and also suggests that while growth is important, the government cares about other policy objectives such as financial stability.
There is still some policy room for the government to adjust its stimulus if it decides to take a wait-and-see approach now and act later in the year.
Malayan Banking Bhd (Fiona Lim, senior FX strategist)
Yuan sentiment is undermined by the disappointing growth target set for 2023 that dampened expectations for significant stimulus this year. That said, we remain cautiously optimistic on China’s growth prospect and view this low growth target as a way to give the new team more room for room/time to focus on reviving animal spirits in the economy.
Shanghai PD Fortune Asset Management (Zhang Fushen, senior analyst)
The biggest takeaway is ‘no strong stimulus this year,’ suggesting that authorities are satisfied with the pace of recovery. The only viable trades will be in the growth sectors around tech, innovation, chips software.
Societe Generale SA (Wei Yao, economist)
The growth target may seem underwhelming, but we see it as a strategy of ‘aiming low and overachieve’ by the upcoming new government team, rather than lack of confidence among policymakers. The government report confirmed a more pragmatic policy stance toward real estate and internet platforms.
Chanson & Co. (Shen Meng, director)
A 5% target is actually a more reasonable and healthier target, better for curbing systemic risks. Such a target not only gives the government more flexibility in its policies but also ensures room for structural industrial reform.
UOB Kay Hian (Hong Kong) Ltd. (Steven Leung, executive director)
The Chinese government doesn’t want to be pushing the economy too aggressively, likely due to a lot of uncertainties from the US and Europe.
Markets will find these policies and the GDP target acceptable. Investors are watching closely what the Fed chair says this week, so it’s still wait and see for news from the US.
Pinpoint Asset Management (Zhiwei Zhang, president and chief economist)
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. This is more important than the fiscal and monetary policies.
The growth target came in at the lower end of the market expectation but should be taken as a floor that the government is willing to tolerate.
Jefferies Financial Group Inc (Edison Lee and others)
The government stressed growing the digital economy and achieving tech localization along with other major goals. SOE reform seems to have received a big focus, which likely explains the recent southbound-driven rally of telco-related stocks.
The government pledged to improve SOEs’ core competitiveness and balancing their economic and social obligations. We see telco ecosystem, software and IDC as key beneficiaries.
Global Cio Office (Gary Dugan, chief executive officer)
The government highlighted consumption as the key driver for growth in 2023 and is likely to ensure that consumer confidence is maintained through targeted support of the housing market. We retain our constructive view of Chinese equities with a focus on domestic plays, particularly consumer related.
Citigroup Inc. (Griffin Chan and others)
Property was not a focus in the 2023 work report while the overall tone was gentle and supportive. Given recognition of systematic risks for property and a focus on downside protection, expect credit-side supports to be enhanced and demand-side easing to continue to drive basic/upgrade housing purchases.
Shanghai Zige Investment Management (Wang Huan)
The wording around real estate seems to suggest that the worst of the risks are behind us. The upgrade of industries and tech innovation should remain the priority in the years to come, and see great policy determination to refrain from turning back to the old drivers of growth.
Read more:
- Chinese Stocks Decline as Congress Sets Modest Growth Target
- China to Target ‘Unregulated’ Expansion in Property Market (1)
- China’s Cautious Growth Target Gives World Economy Little Help
–With assistance from Abhishek Vishnoi, Selina Xu, Tania Chen, Chester Yung and Wenjin Lv.
(Updates with three more comments in first three bullets.)
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