China's first major policy meeting of the year wrapped up on Monday with more of a sigh than a bang. Anticipation heading into the top policymakers' gatherings, known as the "Two Sessions", was high with expectations for a stronger stimulus to jumpstart recovery in China's slowing economy with the property sector still in a slump and sluggish consumption. Those hopes didn't materialize, and the economic targets shed little new light on China's plans to revive its economy. Some announcements gave observers cause to cheer, but mostly left markets wanting more.


UNMEET THE PRESS: The legislative sessions got underway with a surprising announcement: the ending of the decades-long tradition of holding a press conference with the premier. The presser, held since the early 1990s, received global attention for addressing key policy concerns and social issues in the world's second-largest economy. Axing the event will make policy more opaque, analysts say. "Investors now have to dig deeper into China's official announcements, departmental press conferences, and policy papers to find clues to better understand," its policies," JLL chief economist for Greater China Bruce Pang said.


HIGH TARGET: China set its economic growth target for 2024 at "around 5%," as widely expected by analysts. That's the same goal it had for 2023 when it reported GDP growth of 5.2%. But analysts think it'll be much harder to achieve that this time around, as postpandemic tailwinds fade and an unfavorable comparison base takes effect. Hitting the new target will likely require a fiscal stimulus push and resuscitation of the property sector. Officials gave signs of the first but not the latter.

"The key question remains on how to boost the growth to around 5% this year...given the challenges that China faces both internally and externally," UOB economist Ho Woei Chen said.


FISCAL FIREPOWER: Officials set the fiscal deficit target at around 3.0% of GDP, in line with expectations. But they surprised markets by earmarking a record-high "augmented deficit", a metric economists often track as the broadest measure of the fiscal gap. That includes a planned 1 trillion yuan ($139.19 billion) issuance of ultra-long central government bonds and CNY3.9 trillion in special local government bonds.

Investors will be watching to see where the money will go. Officials at the meetings hinted that proceeds will go toward technology innovation and energy security. The phrasing tied to the special LGBs has been read by many analysts to mean that coastal provinces with sounder economies could be first in line for funding, ahead of more indebted provinces. The proceeds of special LGBs are typically used for projects like transportation and infrastructure.

The budget was noteworthy in that it marked a shift in how Beijing tackles its fiscal problems, analysts said. The central government is shouldering more responsibility as local governments struggle under debt. "It's the start of a fundamental shift," said Dan Wang, Hang Seng Bank's chief economist.


PROPERTY BLUES: Anyone looking for signals of bigger, bolder stimulus for the property sector was likely disappointed. Remarks about housing during the meetings gave little new insight into China's plans to breathe life back into the real-estate market. It reiterated the policy of "housing is for living in, not for speculation," but signaled there was room for some local governments to relax homebuying curbs. Given that such moves have so far failed, the question now is if this will move the needle more.

Nomura research analysts said in a note that a turnaround hinges on stabilizing home sales. With consumer confidence low and limited potential policy support from the central government, that could take a long time.


DEFLATION: A key source of concern about China's economy has been low consumer confidence and deflating prices. Like the GDP target, the government's inflation goal of "around 3%" was the same as last year's and in line with views. But also like the GDP target, a lack of detail on how to reach it left room for doubt about its viability.

"The 3% goal may be a stretch," said Erica Tay, an economist at Maybank. "But setting it at that level helps to anchor businesses' and households' inflationary expectations."

The head of the People's Bank of China said during the meetings that there is room to further cut banks' reserve requirements and pledged to use more monetary measures to help prop up prices. Beijing's emphasis on consumer goods trade-in and equipment upgrade programs also caught analysts' attention. Though thin on details, analysts said the program, which China used in 2009 to boost consumption, could help spur demand but also have a "payback effect" of consumers not needing to buy new goods down the road.


NEW GROWTH ENGINES: A line emphasized during the meetings was the development of "new productive forces," which analysts said is about advancing the electric-vehicle, renewable energy and advanced technology industries. The phrase underlines Beijing's renewed focus on developing more sustainable engines of economic growth, instead of relying too much on traditional drivers like the property sector.

A potential downside of the strategy is that it appears to quash the possibility of big stimulus for the property sector, some analysts said.


WHAT'S NEXT: China watchers will remain on the lookout for any policy announcements to back up the targets set at the Two Sessions. Economic data will remain in focus for signs that the stimulus announced so far is having an effect. Data this week showed a surprising jump in inflation, adding to some other positive signs like strong export growth at the start of the year.

The next major event will be the politburo's meeting led by President Xi Jinping in late April, to discuss the key economic data of the first quarter and signals on the country's priorities for economic development for the year. Goldman Sachs analysts wrote in a note that there is no clear timeline for another major macro catalyst apart from the April meeting, which could lead to investor disappointment.

"China has a long road to recovery ahead, with many potential pitfalls; post-NPC, the journey remains perilous," Taimur Baig, chief economist at DBS, said in a note.


Write to Jiahui Huang jiahui.huang@wsj.com and Fabiana Negrin Ochoa fabiana.negrinochoa@wsj.com


(END) Dow Jones Newswires

03-12-24 0336ET