China reaction: 5% GDP growth target does not erase concerns over deflation

KEY POINTS
Premier Li Qiang set China’s annual growth target for the year at “around 5%” for 2024, as he opened the annual National People’s Congress earlier today.
The fiscal deficit was set at 3% of GDP for this year, the same level as initially targeted in 2023. In addition, RMB 1tn central government special bonds and RMB 3.9tn local government special bond were announced.
The proposed fiscal package was not a surprise. That said, it did not ease market concerns on deflation.
Monetary policy is likely to stay easy and coordinate with the fiscal measures. Further rate cuts are expected in the coming months, especially in H2 after easing cycles are expected to have begun in other major economies.

Premier Li’s first Government Work Report delivered no surprises

The annual meeting of National People’s Congress (NPC) was opened by the Government Work Report from Premier Li Qiang, marking his debut at the NPC as Premier. In the report, the GDP growth target for 2024 was set at “around 5%” – the same as last year – with the fiscal deficit aimed at 3% of GDP (equivalent to RMB 4.06 trillion). Additionally, a series of additional long-dated (>10 year) central government special bonds (CGSB) will be issued over the following years, starting with RMB 1 trillion for 2024. The quota for local government special bonds (LGSB) is set at RMB 3.9 trillion for 2024, which is RMB 0.1 trillion more than in 2023. However, no details were announced regarding the local government debt swap/refinancing plans.

Although the “around 5%” GDP growth target aligns with the target for 2023, it can be seen as more ambitious given the less favourable base effect from last year – growth in 2022 had been depressed by COVID and China’s policy actions based on its Zero-COVID ambition. Preliminary estimates suggest that the fiscal package may be sufficient to achieve the growth target for this year. Combined with the leftover fiscal quota from H2 2023 (RMB 500 billion CGSBs were left unissued last year, but roughly RMB 750 – 800 billion will be realised this year); approximately RMB 1 trillion of pledged supplementary lending (PSL); and the newly announced RMB 1 trillion CGSB, the fiscal package is worth around 2 percentage points (2ppt) of GDP. Assuming fiscal spending has a multiplier close to 1, with most going into infrastructure investment with limited spill-over effects, GDP growth this year, this should translate to a boost to growth of around 2ppt.


Supply centric stimulus package may not be as reflationary

China also reset its Consumer Price Index (CPI) inflation target at “around 3%”. However, unlike China’s unerring ability to achieve its GDP target, it does not have a similar success in achieving its inflation target. The PBoC’s inflation target has remained at 3% since 2015 (with an exception of 3.5% in 2020) while actual inflation over briefly reached (and exceeded) this rate in 2019/2020. Indeed, the target serves more as an inflation ceiling than a goal. As such, this year’s target, significantly higher than January’s annual inflation rate of -0.8%, does not imply significant support is underway for consumer prices.

The market had been calling for more support for the consumer sector ahead of the NPC, as concerns over deflationary pressure mount. However, the supply-centric fiscal stimulus plan may have disappointed, especially the offshore market. The Hang Seng index dropped by more than 2.6% on the day.


Monetary policy stance remains loose

Growth targets for total social financing and M2 supply were also set to be consistent with expected economic growth and price levels, with an emphasis on credit prudence, flexibility, efficiency, and accurate targeting. The recent policy moves, including a 50 basis points (bps) required reserve ratio (RRR) cut and a 25bps cut to the 5-year Loan Prime Rate (LPR), confirm the PBoC’s easier policy stance. We expect monetary policy to remain loose to coordinate with the fiscal stimulus for this year. Further RRR and policy rate cuts are likely, especially after the US begins its easing cycle, providing more room for the PBoC to move, while it keeps one eye on the level of the yuan.

The cancellation of the Premier’s press conference to close the NPC – a tradition of the last 30 years – has left the market additionally disappointed, adding another layer to the already vague policy delivery. Meanwhile, it makes tomorrow’s press conference (6 March, 3pm Beijing time) more of a focus. The Head of the PBoC, along with leaders from the Ministry of Finance, Ministry of Commerce, National Development and Reform Commission, and Securities Regulatory Commission, are expected to provide further insight into the economic planning for the year.

    Disclaimer

    Este documento tiene fines informativos y su contenido no constituye asesoramiento financiero sobre instrumentos financieros de conformidad con la MiFID (Directiva 2014/65 / UE), recomendación, oferta o solicitud para comprar o vender instrumentos financieros o participación en estrategias comerciales por AXA Investment Managers Paris, S.A. o sus filiales.

    Las opiniones, estimaciones y previsiones aquí incluidas son el resultado de análisis subjetivos y pueden ser modificados sin previo aviso. No hay garantía de que los pronósticos se materialicen.

    La información sobre terceros se proporciona únicamente con fines informativos. Los datos, análisis, previsiones y demás información contenida en este documento se proporcionan sobre la base de la información que conocemos en el momento de su elaboración. Aunque se han tomado todas las precauciones posibles, no se ofrece ninguna garantía (ni AXA Investment Managers Paris, S.A. asume ninguna responsabilidad) en cuanto a la precisión, la fiabilidad presente y futura o la integridad de la información contenida en este documento. La decisión de confiar en la información presentada aquí queda a discreción del destinatario. Antes de invertir, es una buena práctica ponerse en contacto con su asesor de confianza para identificar las soluciones más adecuadas a sus necesidades de inversión. La inversión en cualquier fondo gestionado o distribuido por AXA Investment Managers Paris, S.A. o sus empresas filiales se acepta únicamente si proviene de inversores que cumplan con los requisitos de conformidad con el folleto y documentación legal relacionada.

    Usted asume el riesgo de la utilización de la información incluida en este documento. La información incluida en este documento se pone a disposición exclusiva del destinatario para su uso interno, quedando terminantemente prohibida cualquier distribución o reproducción, parcial o completa por cualquier medio de este material sin el consentimiento previo por escrito de AXA Investment Managers Paris, S.A.

    La información aquí contenida está dirigida únicamente a clientes profesionales tal como se establece en los artículos 194 y 196 de la Ley 6/2023, de 17 de marzo, de los Mercados de  Valores y de los Servicios de Inversión.

    Queda prohibida cualquier reproducción, total o parcial, de la información contenida en este documento.

    Por AXA Investment Managers Paris, S.A., sociedad de derecho francés con domicilio social en Tour Majunga, 6 place de la Pyramide, 92800 Puteaux, inscrita en el Registro Mercantil de Nanterre con el número 393 051 826. En otras jurisdicciones, el documento es publicado por sociedades filiales y/o sucursales de AXA Investment Managers Paris, S.A. en sus respectivos países.

    Este documento ha sido distribuido por AXA Investment Managers Paris, S.A., Sucursal en España, inscrita en el registro de sucursales de sociedades gestoras del EEE de la CNMV con el número 38 y con domicilio en Paseo de la Castellana 93, Planta 6 - 28046 Madrid (Madrid).

    Advertencia sobre riesgos

    El valor de las inversiones y las rentas derivadas de ellas pueden disminuir o aumentar y es posible que los inversores no recuperen la cantidad invertida originalmente.

    Volver arriba
    Clientes Profesionales

    El sitio web de AXA INVESTMENT MANAGERS Paris Sucursal en España está destinado exclusivamente a clientes profesionales tal y como son Definidos en la Directiva 2014/65/EU (directiva sobre Mercados de Instrumentos financieros) y en los artículos 194 y 196 de la Ley 6/2023, de 17 de marzo, de los Mercados de Valores y de los Servicios de Inversión. Para una mayor información sobre la disponibilidad de los fondos AXA IM, por favor consulte con su asesor financiero o diríjase a la página web de la CNMV www.cnmv.es

    Por la presente confirmo que soy un inversor profesional en el sentido de la legislación aplicable.

    Entiendo que la información proporcionada tiene únicamente fines informativos y no constituye una solicitud ni un asesoramiento de inversión.

    Confirmo que poseo los conocimientos, experiencia y aptitudes necesarios en materia de inversión, y que comprendo los riesgos asociados a los productos de inversión, tal como se definen en las normas aplicables en mi jurisdicción.