Central Idea

The Chinese government’s growth target of 5% for 2023 has disappointed observers, given that it is lower than last year’s target and below the expected GDP growth for India in 2023. This is all the more surprising if one considers that India is benefiting from the positive impact of the country reopening after COVID-19 lockdowns while China should benefit from its reopening only this year.

Reasons for China’s lower growth target?

Risk of undershooting growth target again: The Chinese government does not want to run the risk of undershooting its growth target again, as it happened in 2022.
Weak external demand and doubts about private investment: Even if consumption is recovering, external demand remains weak and it is hard to know whether private investment will indeed rise given the doubts about the role of the private sector in the Chinese economy as well as increasingly cautious sentiment being expressed by foreign investors.
Real estate sector dragging down growth: The real estate sector is still dragging down growth.

The Chinese government recognizes that too high a growth rate is no longer desirable, as it only aggravates financial imbalances.
Instead, they are promoting sustainable growth, which involves a structural shift of the Chinese economy and the implementation of tighter regulatory measures to contain financial risks and achieve more social objectives, such as a green economy and food security.

China emphasises the importance of job security as an objective of sustainable growth, with a higher target for new jobs set by the Chinese government.
China’s recent charm offensive to retain foreign direct investment in China is an important source of job creation, given the country’s concern about the job market, especially young workers.
However, investors are looking at new pastures, with India likely to be a major beneficiary. Foreign investors are beginning to contribute more substantially to job creation in India, which could pose challenges for China as it tries to hold on to foreign direct investment within the country.

The growth prospects of India and China, with a focus on job creation and competition for foreign direct investment.
while India and China may not be too different in size and population, growth prospects differ substantially.
The Chinese government’s cautious growth targets are consistent with the current challenges facing the Chinese economy, but they face more competition than before, especially from India, which has a larger market size and labor pool.
This pattern of India’s resilient growth and China’s cautious growth targets will accelerate in the next few years, especially if the reshuffling of the value chain continues, pushed by geopolitics and high costs in China.

The Chinese economy could be facing structural deceleration while India enjoys the benefits of its demographic dividend. China’s structural deceleration and tighter regulatory measures may also affect its future growth prospects. As a result, India may be better positioned for sustained growth compared to China in the coming years.

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