China sets ambitious growth goals but holds back on stimulus

Li’s speech offered “no meaningful solutions,” argued Michael Pettis, a professor of finance at Peking University. The slight shift in concentrating borrowing from local governments to the central government is “nowhere near enough” to achieve the target growth. Under this plan, China will either have another blowout year on the debt burden or Beijing will acquiesce and begin directly distributing borrowing proceeds to households to support consumption, he predicted. “There is no other way to boost growth without boosting debt even more,” Pettis wrote, and the consensus among economists in favor of directly sending fiscal proceeds to households is “overwhelming.”

Beijing recognizes the “disturbing” conditions that are hindering foreign investment, and part of the government’s plan for this year includes removing restrictions on foreign investment in manufacturing and expanding its footprint in industries like telecommunications and the medical sector. But investors are not convinced, with Sharmin Mossavar-Rahmani, Goldman Sachs’ wealth management chief investment officer, advising the public to not invest in China. Despite the promised reforms, investors will continue to see China as a “short-term speculative stop” rather than a hub for long-term investment, wrote economist Mohamed El-Erian for the Financial Times. He argued that investors are not blind to how domestic policy is pushing the country into a “middle income trap” where there are fewer avenues for further growth and stagnating wages. With no commitment to mitigating tensions with the West, “foreign investors are justified in regarding their ventures into Chinese stocks as short-term,” El-Erian argued.

China will boost military spending by 7.2% this year even as China watchers pointed out that Beijing removed any mention of a “peaceful reunification” with Taiwan in the government’s annual budget report. But the push for defense spending is a sign of military readiness and not necessarily imminent war, according to the South China Morning Post. China’s total military spending relative to GDP remains below 1.5%, well below the U.S.’ share of GDP. Still, the bulk of the military budget will go on buying expensive high-tech equipment and training troops in the event of war, a former mainland military equipment expert told the Post. China is taking notes from Russia’s war in Ukraine and the military must ensure “they can win the fight when being called up,” the expert said.