On March 5th, the government work report announced a GDP growth target of around 5% for 2023, which Premier Li Keqiang delivered on the first day of the National People's Congress (NPC). While this figure falls below many people's expectations, who expected it to be 5.5% or above, we believe it is a positive development for China over the long term for several reasons:
- It indicates that China will pursue steady growth over the next few years rather than resorting to significant stimulus measures for the current year. While we believe that China could achieve higher growth in 2023 if it chose to do so, it is essential to consider whether such a rate of growth can be sustained in the long run. The 4 trillion yuan stimulus package in 2009 is still frequently cited as a cautionary tale , as it led to higher growth in 2009 but had side effects in the following years. The government has learned from this experience and has sought to avoid excessive stimulus policies.
- Quality is more critical than ever before. The 19th Party's National Congress in 2017 proposed high-quality development, which means that China will allocate more resources towards improving the quality of growth, rather than simply increasing GDP . The 20th Party's National Congress last year emphasized that steady and high-quality growth is essential to building a modern socialist country by the middle of this century .
- The target perhaps reflects what officials believe is the long-term potential growth rate for the next few years. China's economy has grown rapidly in the past two decades, and more importantly, its structure has undergone significant changes. Domestic consumption and manufacturing sectors have taken a larger share of GDP than traditional property and construction sectors . Given current resources and technology, setting a GDP growth rate of 5% is reasonable. We believe that 5% may also be the target for future government work reports.
Regarding the impact on China's A-share market, those who expected a higher target may be disappointed and sell, causing short-term market volatility. However, investors with longer-term horizons may view this as an opportunity to buy during the dips.
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