Lawrence J. Lau

Opinion | From education to taxes, how China can boost demand and drive growth

Growth no longer depends on net exports or foreign investment but on aggregate demand from within China – and there are two promising sources

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Lawrence J. Lau

Published: 5:30am, 5 Jul 2024Updated: 5:50am, 5 Jul 2024

Earlier this year, before China announced its target economic growth of around 5 per cent for the year at the “two sessions” parliamentary meetings in March, I had forecast a range of between 5 per cent and 5.5 per cent – a range rather than a point forecast because of the uncertainties China and the world face.

My forecast was based in part on the target growth rates announced by the 31 provinces, municipalities and autonomous regions on the Chinese mainland. Based on the gross domestic products achieved by provinces last year, I calculate that the weighted average of the provincial target GDP growth rate this year is 5.41 per cent.

Thus, my range forecast is supported by the national and weighted average of individual provincial target growth rates.

For the first three months of this year, China’s economy grew by 5.3 per cent year on year. At the end of May, the International Monetary Fund raised its annual GDP forecast for China to 5 per cent from 4.6 per cent.

According to China’s statistics bureau, for January-May, the value added of industrial enterprises increased by 6.2 per cent year on year while the services industry production index rose by 5 per cent. Since these two account for over 93 per cent of China’s GDP by my calculation, it would suggest a real rate of Chinese GDP growth in excess of 5 per cent for the first five months.

On the demand side, retail sales grew by just 4.1 per cent year on year for the first five months and fixed-asset investment by 4 per cent – the latter affected by the depressed property sector, and both lagging behind real GDP growth. This supports the idea that China needs more aggregate demand to boost growth.