China plans to boost defense spending by 7.2% and targets a 5% economic growth rate by 2023.

Premier Li Keqiang’s government work report released on Sunday announced that China has set a growth target of “around 5%” for 2023. This is lower than the GDP target that analysts expected, which was above 5%. According to CNBC analysis, the average forecast for growth is 5.24%.

In addition to the growth target, China also set a goal of keeping the consumer price index at 3%, and maintaining a 5.5% unemployment rate for people in cities. The government aims to create around 12 million new urban jobs, which is more than last year’s target of “over 11 million.”

The work report emphasized the need to implement a “prudent monetary policy” in a “targeted” way. The deficit-to-GDP ratio is expected to increase to 3% from 2.8% last year, according to the report.

Premier Li presented the report during the opening of the National People’s Congress, which is part of the annual “Two Sessions” parliamentary meeting. This is Li’s last such congress as premier.

The recent work report acknowledged the upcoming change in leadership within the central government and laid out eight priorities for economic policy. The report highlighted the importance of boosting domestic demand through consumption and investment, improving the industrial system, and supporting non-state-owned enterprises. Other priorities included attracting and utilizing foreign investment, mitigating financial risks, stabilizing grain production, promoting green development, and developing social programs.

The report also emphasized the need to develop the digital economy, increase oversight, and support the platform economy, without naming any specific companies. However, it is worth noting that internet tech companies such as Alibaba often fall under this category, which has been under scrutiny from the Chinese government in recent years.

Regarding the real estate sector, the report called for supporting first-time homebuyers and resolving housing problems for new urban residents and young people. It also stressed the importance of effective risk prevention and mitigation in leading real estate enterprises, improving debt-to-asset ratios, and preventing unregulated expansion to promote stable development. This comes as China’s economic growth has been weighed down by a slump in the property sector, prompting Beijing to crack down on developers’ high reliance on debt for growth.

According to Bruce Pang, chief economist and head of research for Greater China at JLL, China’s real estate policy will likely support high-quality companies’ reasonable financing needs and guide them towards sustainable growth areas. However, he noted that developers who cannot adapt to business adjustments and transformation will be naturally cleared by the market.

China’s economic growth fell short of the national goal as GDP only increased by 3% last year. The country had set a target of achieving around 5.5% growth in 2022, but measures taken to control the spread of Covid-19, such as the two-month lockdown of Shanghai, and a slump in the real estate market, contributed to the lower growth rate.

This year’s Two Sessions, an annual meeting of China’s top legislative and consultative bodies, will also formalize government titles for the new premier, vice premiers, and heads of various ministries. The National People’s Congress, which is part of the Two Sessions, will conclude on March 13.

In the wake of a complete reshuffling of the government, one important issue to keep an eye on in the coming months is how the new leaders will enhance private sector confidence, according to Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management. In his view, this is more crucial than fiscal and monetary policies.

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