China's Premier Li offers bleak outlook as GDP target hopes fade

China has never admitted to missing its annual growth target by a large margin. PHOTO: REUTERS

BEIJING (BLOOMBERG) - Chinese Premier Li Keqiang has given his starkest warning yet about the economy as it comes under severe strain from Covid-19 outbreaks and lockdowns, suggesting the government's growth target is moving further out of reach.

Mr Li held an emergency meeting on Wednesday (May 25) with thousands of representatives from local governments, state-owned companies and financial firms, calling on them to do more to stabilise growth. He said the economy is, in some respects, faring worse than in 2020 when the pandemic first emerged and urged more efforts to reduce a soaring unemployment rate.

Mr Li's warnings add to expectations that Beijing may admit to missing its gross domestic product target by a large margin this year as it keeps its focus on controlling Covid-19 infections through lockdowns and other stringent controls. Economists surveyed by Bloomberg forecast the economy to grow 4.5 per cent this year, well below the government's target of about 5.5 per cent.

"It is obvious that Li was very worried, as he ordered all possible ways to stabilise growth, jobs and businesses as soon as possible," said Mr Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. "But the State Council can only do its best under the unchanging framework of Covid-19-zero, and it ultimately depends on the transmission of the virus."

The Premier highlighted the economy's weak performance, saying "economic indicators in China have fallen significantly, and difficulties in some aspects and to a certain extent are greater than when the epidemic hit us severely in 2020". He called on officials to ensure unemployment falls and that the economy "operates in a reasonable range" in the second quarter of this year, state media cited him as saying.

Latest official data showed a contraction in industrial output for the first time since 2020 and a jump in the surveyed jobless rate to 6.1 per cent in April, close to a record.

High-frequency data for May showed that the economy remained in a deep slump, according to Bloomberg's aggregate index of eight indicators.

State media echoed Mr Li's plea on Thursday to boost growth. The Economic Daily said in a commentary that China has to make more strenuous effort to achieve this year's economic growth target, and all work on stabilising employment and helping small businesses needs to accelerate. The newspaper is affiliated with the State Council, China's Cabinet.

Mr Li's emphasis on growth in the second quarter may be an "implicit acknowledgment" that the growth target set in early March will be challenging, Goldman Sachs economists wrote in a note. "Chinese policymakers are in greater urgency to support the economy after the very weak activity growth in April, anaemic recovery month-to-date in May, and continued increases in unemployment rates."

The Premier indicated that China will try to reduce the economic impact of its strict Covid-19 control policies, without specifying how that would be achieved.

"At the same time as controlling the epidemic, we must complete the task of economic development," he said.

Beijing has never admitted to missing its annual growth target by a large margin since it began setting such goals more than three decades ago, with only one narrow miss previously reported in 1998. It did not report a target in 2020, when the pandemic first hit.

Beijing has also never revised the GDP target during the year. The target is part of the government's work report, approved by the National People's Congress (NPC), the Communist Party-controlled Parliament. So if it were to be changed, it would likely need approval by the NPC Standing Committee.

Officials have been de-emphasising growth in favour of other priorities such as national security and controlling financial risks, so missing the target may not be a major political risk for Mr Xi as he seeks a third term as leader at a Communist Party congress in the fall. Mr Xi stated in a key party document last year that GDP growth should no longer be the "sole criterion of success".

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