China's economic revamp: China has announced plans to revamp its economic model, aiming for a growth rate of around 5 per cent this year. Premier Li Qiang outlined this strategy during the National People's Congress meeting, stressing the need to address various challenges such as industrial overcapacity, property sector risks, and excessive local government spending.

Economic growth challenges

The growth target remains unchanged from the previous year, but achieving it will require increased government stimulus. China's economy still heavily relies on state investments, leading to major municipal debt. Structural issues such as weak household consumption and diminishing investment returns have become more apparent amid the post-COVID recovery.

To tackle these issues, China aims to transform its growth model, improve quality, and enhance performance. Specific details of these changes were not immediately provided. However, the government plans to maintain a proactive fiscal stance and prudent monetary policy, aiming to boost employment, stabilise incomes, and manage risks effectively.

Fiscal policy highlights

Key fiscal measures include reducing the budget deficit to 3 per cent of economic output and issuing special ultra-long-term treasury bonds worth 1 trillion yuan. The government also plans to increase local government special bond issuance to 3.9 trillion yuan. Other targets include keeping consumer inflation at 3 per cent and creating over 12 million urban jobs while maintaining the unemployment rate at around 5.5 per cent.

Despite these measures, the government aims to avoid excessive economic stimulus and maintain relatively low leverage. There's a possibility of adjusting the budget deficit target later in the year if necessary. Analysts anticipate China to lower its growth ambitions in the future, with the IMF projecting a growth rate of 4.6 per cent this year, declining further in the medium term.

(With Reuters Inputs)