The latest speech at China’s National People Congress (NPC) by Premier Li Keqiang announced a GDP growth target of around 5% for 2023.

In 2022, the NPC set a 5.5% GDP growth target for China, but only managed to achieve 3%, as the economy was deeply impacted by the country’s ‘zero-COVID’ policy and by a depressed property market. China pivoted on its COVID policy at the end of 2022, paving the way for a rebound in the economy, driven by domestic consumption. The February PMI rebounded to 52.6 versus 50.1 in January and 47 in December, while the respective numbers for the non-manufacturing PMI were 56.3, 54.4 and 41.6, evidencing a rebound in economic activity.

The 5% growth target could be perceived as conservative after the 3% GDP growth posted in 2022 and may disappoint markets which were probably expecting a more bullish forecast. Project Blue, however, believes that this 5% target represents more a floor than a forecast, especially given last year’s large miss. The Chinese government may also have assumed that since the COVID restrictions have been lifted that there is no urgency to announce additional economic stimulus measures. Another reason for the conservative growth target could be related to the uncertainty prevailing for the global economy, especially in a high and sticky inflation context.

Project Blue is holding its 2023 GDP forecast for China unchanged at 5.5%. The rebound in China’s consumption, which accounts for about 40% of the country’s GDP should be the major driver for the economy in 2023.