China forecasts one of its weakest growth in decades for 2024

From our correspondent in Asia,

The red armbands are back in Beijing, on the eve of the annual political high mass of communist China. Like every beginning of March, the "volunteers" of the neighborhood committees support the anti-riot forces to crisscross the capital around the great Hall of the People where the National People's Assembly (ANP) opened this morning, the chamber of registration of the regime, against a backdrop of economic slump and a weighed-down geopolitical horizon.

In tune, Prime Minister Li Qiang drew the card of stability by forecasting growth “of around 5%” in 2024, under the sphinx gaze of President Xi Jinping, helmsman of a giant scrutinized by investors. “We will continue progress and guarantee stability” promised number 2, unveiling this expected target, in line with the performance displayed last year (5.2%), without promising a massive recovery plan, with the aim of priority is the move upmarket of its industry, and technological sector meeting the Western challenge. One of the weakest objectives since the 1990s, excluding the pandemic, but considered ambitious by economists, against a backdrop of sluggish global and domestic demand.

China will also continue to strengthen its defense, with a 7.2% increase in its military budget, at the same rate as in 2023, in the midst of a purge within the high command of its nuclear force. A figure higher than GDP growth, in a context of long-term rivalry with the United States, with Taiwan in its sights. The regime “vigorously” opposes “separatist activities” and “external interference” warned Li, in the wake of the election in January in Taipei of Lai Ching Te, champion of the island's democratic identity. Beijing will spend $231 billion on its defense this year, the second largest budget in the world, dwarfing that of its Asian neighbors, but still three times lower than that of the Pentagon.

The ritual of the "two sessions" of the Chinese Parliament is particularly scrutinized this year, as doubts accumulate about the health of the world's second largest economy, weighed down by the real estate crisis, sluggish domestic consumption and capital flight. “They face both internal and external difficulties,” said Chen Daoyin, a former professor at the Shanghai University of Political Science. In 2023, foreign investments in China fell to their lowest level since 1993, reflecting the growing distrust of Wall Street in the face of the statist turn imposed by the most centralizing leader since Mao. “The challenge is to restore confidence in the system, its capacity to produce political stability, but also economic results,” judges Mathieu Duchatel, Asia Director at the Institut Montaigne.

Li did not hide the scale of the task, in front of the three thousand “delegates” gathered under the Stalinist gold of the immense room crowned with a red star. “The foundations of the recovery are still not solid, due to insufficient demand, overcapacity in certain industries, low societal expectations, and multiple persistent risks,” recognized this loyalist of the Secretary-General. Chinese stock markets opened in the red following the speech, signaling market distrust. Plagued by deflation, Beijing is aiming for a voluntary price increase of 3%, and an unemployment rate of 5.5%, while it has reached 20% among young people, to the point of deciding the authorities to suspend the publication of this statistic last August.

If the second most populous country in the world is still growing, further broadening the base of its middle classes, the objective of 5% growth looks more complicated to achieve this year, economists judge. “It will be hard, but they will get there by playing with the figures,” judges Alicia Garcia Herrero, chief economist for Asia at Natixis. China struggled to keep its promise last year, even though it benefited from a favorable statistical base effect in 2022, marked by the confinement of Shanghai. This year, the slope will be steeper and the signals from the first quarter are mixed, marked by a contraction in the manufacturing PMI index, but a dynamic services sector.

These hard and fast issues have serious political implications for Xi, faced with growing headwinds in his third term, eroding the Faustian pact established between the Party and the economic elites, ever more numerous of placing their fortunes abroad, Singapore, Tokyo or Dubai. This “Red Prince” obsessed with control must reassure the middle classes hit hard by the stone and stock market crisis, and accustomed to seeing their income inexorably swell since the takeoff of the World Factory, at the turn of the century. century. “Xi Jinping and the Party are under pressure, and realize that they must respond to domestic discontent in order to ensure continued support from the population,” said Lee Dong Gyu, a sinologist at the Asan Institute in Seoul.

The ritual sequence of the “Two Sessions”, choreographed to the millimeter by the red strategists, which will take place until Monday, offers a theater scene full of extras, responsible for projecting Xi towards a fourth term. Analysts will be watching for faint clues of possible discordance, while the leader has put down the “collective leadership” of his predecessors, and continues to regain ideological control of society, even relaunching the “militias” of the Maoist era . They will scrutinize his interactions with the top brass in the immense stone liner of the Great Hall of the People, while a merciless purge brought down the Minister of Defense in the fall. With the suspense of the possible appointment of a new Minister of Foreign Affairs to replace Qin Gang, abruptly dismissed in the summer, and since replaced by Madré Wang Yi, the Party's highest diplomatic official.

All signals point to a continuation of Xi's go-it-alone, as illustrated by the suppression of the prime minister's final press conference, a first in three decades. By depriving his number 2 of a rare platform in the spotlight, the president confirms that the Party and its Secretary General are the only masters aboard the China ship, whatever the storms to come.