The lowest growth target in 25 years set by the Communist Party for China has consequences beyond its borders, for example, for its efforts to become a global superpower and global inflation. The effects are already being seen in world markets.
For example, in the commodity markets, the prices of copper and iron, metals used extensively in industry, started the week in decline. Oil prices have also felt downward pressure. With the 5% growth target for this year, though modest, still progressing from last year’s 3% advance, supply chains damaged by Beijing’s zero-tolerance COVID policy are expected to recover.
All this, in theory, should lead to a decrease in global inflationary pressures. The reality is a bit more complicated. Oil-exporting countries, such as Saudi Arabia, which depends on revenues from the sale of hydrocarbons, can influence quotations by adjusting production.
When announcing the economic growth target, Chinese Prime Minister Li Keqiang mentioned the word “stability” 33 times, suggesting the government’s determination to strengthen the economic foundations shattered by COVID and the lockdowns imposed by the government to stem the pandemic long after the reopening of Western economies. It can also indicate the adjustment of the growth model, with more realistic targets and more control of the Communist Party leadership in the economy.
President Xi Jinping is also expected to strengthen his control further in the defence sector, finance, technology, and government. GDP growth of 5% will amount to stagnation if it is related to speeds of more than 10% until the global economic crisis, a disaster after which Beijing decided that the economic model must be changed, emphasising consumption and higher value-added production and self-sufficiency. But it would also be an indicator of maturation, growth without steroids, without incentives such as the over-indebtedness of the real estate sector.
As a comparison, the eurozone economy is expected to advance by just 0.9% this year. But European countries have been hit by the shocks of Russia’s war against Ukraine, in which energy prices are used as weapons against the West. China, on the contrary, takes advantage of the low prices at which it buys energy and raw materials from Russia. If the economy manages to “stabilise”, China can re-enter the race against the US to become the world’s largest economy, a goal that has moved away in the three years of intense struggle with a persistent pandemic, as The Wall Street Journal writes.
A growth target of “only” 5% may also show the reorientation of resources, and the increase in spending on the military would fit into this idea. The draft for the new budget foresees more than 7% higher defence spending in 2023, notes the Financial Times. Public spending gets an extra 5.7%, so defence becomes a priority over development.
The status of a world superpower, or at least local, also presupposes a mighty army. The higher spending on defence would come when China threatens Taiwan, an island state politically protected by the US. Analysts say the third Chinese aircraft carrier, which should be launched into the water this summer, the rapid production of destroyers and combat aircraft, and investments in space technology and artificial intelligence for rocket navigation systems will be the main targets of this year’s spending.
The target of modest economic growth has been met in the oil market with declines, with speculators also disheartened by the prospect of the US Federal Reserve continuing with rising interest rates.
Braking economy also means braking fuel consumption. In addition, Beijing’s lack of intention to continue with economic stimuli seen as traditional such as massive spending on infrastructure, inflating the construction sector with cheap debt, and the determination to contain commodity prices, have cut off the momentum of industrial metal markets. Lower or non-rising quotes would help to dampen inflation. On the global deflationary effects of china’s economy’s growth insists especially Chinese publications. But these effects can be mitigated and even reversed by decisions such as Saudi Arabia’s recent one to raise prices for the oil it sells to Europe and Asia.
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