Chinese leader Xi Jinping appeared to revise his long-term economic outlook when he opened a major political event over the weekend, hinting at modest growth that may see China fail to surpass the U.S.
Beijing’s two-step plan to build what it calls a «great modern socialist country in all respects» by 2049, the centennial of the People’s Republic of China, involves first raising levels of public wealth and doubling the national economy by 2035.
To achieve that, economists believed China would need to maintain annual gross domestic product (GDP) growth of at least 5 percent, a once-realistic trajectory that might have seen it overtake the U.S. economy in GDP terms—valued at $23 trillion versus China’s $17.73 trillion in 2021, per World Bank figures.
This first milestone, known as the «basic realization of socialist modernization,» was declared in 2020 and had been expected to take 15 years. But on Sunday, as Xi opened the Chinese Communist Party’s (CCP) twice-a-decade national congress, the target appeared less ambitious.
China Abandons GDP Target
Two years ago, Xi said it was «entirely possible» to double national GDP and GDP per capita by 2035. His latest pronouncement, however, omitted the former.
«By 2035, our overall development goal is to significantly increase economic strength, scientific and technological capabilities, and comprehensive national power; substantially grow GDP per capita to reach that of a mid-level developed country,» he said.
Chicago-based economic analyst Houze Song observed Beijing was «quietly abandoning its ambition to become the world’s largest economy» in Xi’s work report at the CCP’s 20th National Congress.
The original 2035 target included both measurements. «In contrast, the 20th work report only mentions new milestone for per capita income, not [GDP],» he said.
Song noted the 2035 goal was drafted before China’s 2020 census was released in spring 2021. He told Newsweek: «I believe there are two main reasons behind abandoning the 2035 GDP target. First, Beijing realized that its population will decline more rapidly than anticipated, which makes it more difficult to achieve high growth.»
«Moreover, the GDP target has become less binding in recent years. It was abandoned in 2020, and this year, it seems Beijing doesn’t care much about missing the 5.5 percent growth target,» said Song, who is a research fellow at the Paulson Institute think tank and author of the MacroPolo Econ Substack.
China’s Economy Loses Its Engine
China’s once-a-decade census revealed a declining birth rate and a shrinking workforce. It led to renewed urgency to beat the so-called «middle income trap» of growing old before growing rich.
Births among China’s 1.4 billion people—the most in the world—were expected to fall to new lows in 2022, potentially dipping below 2021’s 10.6 million babies, the fewest on record according to official data since the 1950s.
Its working-age population, which peaked in 2014, would decline by some 35 million people by the middle of the present decade, official demographers said. The looming demographic crisis directly concerns the country’s medium- to long-term productivity.
Xi addressed the issue over the weekend, telling party delegates that the government would «optimize our population development strategy by establishing a policy system to support birth rates and reduce the costs of childbirth, parenting and education.»
Beijing imposed a restrictive one-child policy between 1980 and 2015, before allowing two children, a shift that lasted six years before it expanded to a three-child policy in May 2021.
By July, however, all restrictions were scraped. In their place, officials introduced incentives including tax deductions, housing subsidies and financial rewards for having more children.
China’s Zero-COVID Struggles
Many point to Xi’s heavily centralized approach to domestic governance, including his economic policy of propping up state-owned firms, as stifling private sector growth. In recent years, his decision to double down on «dynamic zero COVID»—his signature public health strategy—has hit productivity, driven small- and medium-sized businesses to closure and raised youth unemployment.
Despite the political pageantry surrounding the party congress, some 200 million people across China were experiencing some form of restricted movement last week—citywide or neighborhood-specific lockdowns, as well as a continuation of the country’s mandatory quarantine policy for domestic and international travelers.
There was brief expectation that the rest of China would follow Hong Kong’s loosening of COVID regulations in September, given the city’s previous tendency to stick to the central government’s rhythm.
However, it quickly became clear that zero COVID’s strong ideological links to Xi’s personal achievements meant the zero-tolerance approach could be framed as nothing but a total success and would need to remain in place going forward—China’s president said as much in his speech.
On Monday, China’s National Bureau of Statistics abruptly delayed the release of third-quarter GDP figures and other fiscal data without providing a reason, in a move that would’ve surprised economists and probably unnerved investors who will look at transparency and regularity as major indicators of confidence in the world’s second-largest economy.
China watchers following Xi’s two-hour speech on Sunday noted that he referenced the «economy» 22 times, versus 102 times at the 18th party congress in 2012, when he became CCP general secretary. «Market» was said three times compared to 24 a decade ago, while «security» rose from 36 to 50 mentions.
Previous annual growth rates in China underpinned the economic forecast that justified the original 2035 target, but Beijing also faces more immediate policy decisions ahead, said Philip Hsu, a visiting fellow at the Brooking Institution think tank’s Center for East Asia Policy Studies.
«Apparently China’s economy is not in good shape and is likely to remain so perhaps at least until the second half next year. I think this is among the main reasons why the target of doubled national GDP by 2035 is no longer mentioned in the work report this time,» he told Newsweek.
«The delay in releasing the Q3 data which can be expected to look mediocre at best is probably an attempt to avert disgracing the Party Congress.
«My guess is that both Xi and [Chinese Premier] Li Keqiang understand that as far as the most crucial problem of economic slowdown—structural pathology of the property sector—remains unresolved sufficiently, it’ll be difficult to return to the growth rate years ago,» said Hsu, who is also director of the Center for China Studies at National Taiwan University.
«The policy of zero COVID adds to, but is not the leading factor of, the slowdown. Rapidly declining consumption and investment that result chiefly from the zero-COVID policy are relatively easy to bounce back from once the policy is relaxed to a certain extent,» he said.
«But of course Xi’s assertion in the Party Congress that the zero-COVID policy is to be continued cannot be trivialized. Whereas local governments have attempted various measures to inject credit into the property sector, confidence and price have not improved much, and it is questionable for how long the injection can be sustained given the rapidly growing local debts almost everywhere in China,» Hsu noted.
China’s Semiconductor Uncertainty
Separately, Beijing is also yet to formally respond to the Commerce Department’s October 7 announcement of semiconductor export restrictions to China, a blacklist that cuts off Chinese firms from high-end American chip technology.
Jake Sullivan, the national security adviser, said the restrictions were «premised on straightforward national security concerns.»
«These technologies are used to develop and field advanced military systems including weapons of mass destruction, hypersonic missiles, autonomous systems and mass surveillance,» he said.
It was still unclear whether the Chinese statistics bureau’s decision to delay its quarterly report was related to the new U.S. measures, which were announced on the eve of the national congress.
While the full ramifications of the sanctions won’t emerge for some time—exporters have been allowed a grace period to get their affairs in order—there already were early signs of disruption.
Unique to the latest round of export controls was its impact not only on hardware, but on human capital, too. U.S. citizens or green card holders must apply for a Commerce Department license in order to work for Chinese chip plants, or face prosecution by the Justice Department.
The restrictions are expected to cause an exodus of U.S. talent from an industry key to China’s long-term ambitions to lead in science and technology. Beijing warned high-tech decoupling was likely to hit American businesses just as hard.