‘China is facing more competition than ever before, especially from India due to its market size and large labor pool | Photo credit: AP
The Chinese government (in the last government report before Chinese Premier Li Keqiang left office, and against the backdrop of the country’s reopening after three years of zero-COVID-19 policies) has disappointed observers with its growth target projection . About 5% in 2023, which is lower than the previous year (5.5%) and even lower than the expected GDP growth for India in 2023 (6.1% according to the International Monetary Fund). This is all the more surprising if one considers that India is benefiting from the positive impact of the country’s reopening after the COVID-19 lockdown, while China should only be benefiting from its reopening this year. Yet, growth will remain relatively low for one simple reason: the Chinese economy is in a process of structural recession while India is still enjoying the benefits of its demographic dividend.
on sustainable development
It is clear that Mr. Li was cautious about the growth target this year. But why? First, the Chinese government, especially the new Premier Li Keqiang, does not want to risk downgrading its growth target again, as it did in 2022. Even though consumption is recovering, external demand remains weak and it is difficult to know whether private investment is actually taking place given the cautious sentiment being expressed by foreign investors, along with skepticism about the role of the private sector in the Chinese economy. Will grow while watching. Moreover, the real estate sector is still dragging down the growth.
After 2023, the government’s effort to structurally change the Chinese economy is still on. Over the years, stricter regulatory measures have been introduced to reduce financial risks and achieve greater social objectives such as green economy, food security, etc. This is an important signal by the Chinese government, acknowledging that too much growth is neither possible nor desirable in the long run as it only exacerbates the fiscal imbalance. In fact, sustainable development has become a key concept in China’s new economic narrative. It is difficult to tell whether this is related to the government’s conviction that the quality of development is what matters most to Chinese citizens today, or an expression of the recognition that pushing development too far will only create additional imbalances.
employment generation and foreign investment
Against such a backdrop, job security is one of the most important objectives of the sustainable development narrative, which lies in a higher target for new jobs (12 million) than in previous years (11 million, excluding . to target even lower in 2020 following the COVID-19 pandemic in China). The revision of the employment target reflects the government’s concern about the job market, especially young workers (with the unemployment rate set to reach nearly 20% in spring 2022).
The need for jobs explains China’s recent attractiveness to retain foreign direct investment in China as an important source of job creation. The sentiment for supply chain diversification is not going to help China meet its employment objective as investors look to pastures new, with India likely to be a major beneficiary. India also needs to create more and more jobs (at least 13 million per year, which is higher than China’s target). Foreign investors are beginning to contribute more significantly to job creation in India, which given the country’s sheer size in terms of market size and labor force, could pose challenges for China as it seeks to curb foreign direct investment within the country. tries to. The forces pushing foreign investors out of China are many: from control by the United States at the highest end of the value chain, which is forcing bifurcation, to higher wages at the lowest end. Furthermore, China’s push for self-reliance is certainly not helping the future plans that foreign investors have for China in their minds.
Overall, the 5% growth target is in line with the current challenges facing the Chinese economy, as well as the government’s more diverse objectives beyond economic growth. Creating more jobs is a quintessential part of China’s new sustainable growth story, but China faces more competition than ever before, especially from India because of its market size and large labor pool.
While India and China may not differ much in size and population, their growth prospects are vastly different. At the National People’s Congress, Premier Li had to further reduce the GDP target; In contrast, India has remained resilient. This pattern can be expected to accelerate over the next few years, especially if the shuffling of the value chain continues, driven by geopolitics and higher costs in China.
Alicia Garcia Herrero is an assistant professor at the Hong Kong University of Science and Technology