Beijing is expected to make an all-out effort to achieve its economic growth target of “around 5.5 per cent” this year as it contends with a raft of hurdles and potential impediments to that goal. Disturbances stemming from a protracted Russia-Ukraine war , lingering tensions with Washington and its allies, and the US Federal Reserve’s expected interest rate hike this month are fuelling debate among analysts over how the world’s second-largest economy will go about trying to achieve its target. “The target can certainly be achieved if Beijing insists, but it will come at a cost,” warned Larry Hu, chief China economist at Macquarie Capital. “It may force the rise of [China’s] macro leverage ratio,” he said, referring to the measurement of an economy’s overall indebtedness. But for now, he said, Beijing should wait and see if existing measures prove adequate to offset external challenges. “The scale of stimulus will depend on if exports remain OK and whether domestic consumption recovers,” he added. Beijing laid out a long list of supportive measures in the government’s recent work report to ease concerns over its gross domestic product (GDP), which contributed to about a quarter of the world’s economic growth last year. In terms of financing, Beijing has set an annual quota of 3.65 trillion yuan (US$578 billion) for local-government-issued special-purpose bonds to fund construction projects this year. ‘China will surpass the US by 2030’ as No 1 economy despite Ukraine crisis Meanwhile, financial institutions and state monopolies are expected to pay a total of 1.65 trillion yuan in revenue to help fund government spending. The National Development and Reform Commission, the country’s top economic planner, also said that 102 megaprojects, which were outlined in the nation’s five-year plan (2021-25), are now in the pipeline and will need to be funded. Meanwhile, China will also extend tax cuts and refunds of about 2.5 trillion yuan this year to support manufacturing, smaller businesses and self-employed individuals, as it strives to stabilise employment. However, Russia’s invasion of Ukraine is already sending shock waves through the global economy and is clouding China’s development prospects. This comes after China and Russia recently declared that the friendship between them has “ no limits ”. ING Bank revised down China’s growth forecast by 0.6 percentage points to 4.8 per cent in late February, saying the country’s slower consumption growth cannot be offset by growth in infrastructure spending. The bank also said earlier this week that it would consider revising forecasts based on geopolitical tensions. And Morgan Stanley, which has long been bullish on China’s growth prospects, announced on Thursday a cut to its 2022 China growth estimated by 20 basis points to 5.3 per cent on the drag of the war in Ukraine. “The reduction reflects sluggish housing activity; potentially weaker exports amid geopolitical tensions and softer global demand; and higher oil prices,” said Robin Xing, Morgan Stanley’s China economist. [China’s] strategy, routes and tactical options have all been compressed Shi Yinhong, Renmin University Chinese authorities have not disclosed their assessment of the war’s impact on the nation’s economy, but Shi Yinhong, a professor of international relations at Renmin University, warned of mounting challenges as the world is acutely polarised. “Our strategy, routes and tactical options have all been compressed,” he said. Meanwhile, as China moves to insulate itself from a global financial system that is heavily tied to the US dollar, questions have been raised about how Russia’s invasion could affect that goal. Effective Friday, China is widening the daily floating range for the yuan against the Russian rouble in the interbank market, the country’s foreign exchange trade platform said on Thursday. Russia’s VTB offers high rates to hoard yuan, skirt dollar sanctions The China Foreign Exchange Trade System, which is overseen by the People’s Bank of China, is allowing the trading band to deviate 10 per cent on either side of the daily yuan/rouble midpoint, up from 5 per cent. The regulator did not elaborate on the decision, but it came after Russia’s currency saw huge depreciation pressure amid blanket sanctions by Western countries. The move also shows how China is trying to cope with the rouble’s volatility as Russia becomes increasingly cut off from global markets. In the lead-up to its once-a-decade leadership reshuffle planned for later this year, Beijing has repeatedly highlighted the need for economic stability. And its insistence of a GDP growth target of around 5.5 per cent is above the 5 per cent that is needed for China to double its economic size by 2035 – a key target written into its long-term development vision. In his address during the opening of China’s “two sessions” annual parliamentary gatherings last week, Premier Li Keqiang acknowledged mounting global and domestic challenges, saying the GDP target is important in ensuring domestic employment, and that “achieving this goal will require arduous efforts”. The Chinese government, which controls about 200 industrial giants, major state-owned banks, and thousands of local financial vehicles, is known for having a deep policy toolkit that it can utilise to achieve its growth goals. Looking inward, Li Keqiang focuses on China’s bottom line The country’s monetary policy easing is already on the cards – a 10 basis points rate cut was announced in January, and the central bank will pay 1 trillion yuan from its profits to the government’s coffers this year. However, analysts say that fiscal policy will also play a prominent role this year. Sinolink Securities economist Zhao Wei said the augmented government expenditure, when factoring in off-budget spending and a cash surplus from last year, could reach 8.4 per cent of the gross domestic product – much higher than the budgeted fiscal deficit ratio of 2.8 per cent. This will help fund transport, energy and telecommunication projects, as well as urban facilities, to boost effective investment. China [GDP] has the potential of growing 6 per cent or even higher this year Justin Lin Yifu, former World Bank vice-president “China is well on the path toward economic stabilisation,” Zhao said. “The national economy may bottom out in the first quarter and gradually return to a reasonable growth range.” Former World Bank vice-president Justin Lin Yifu, who has been very bullish on China’s economic prospects, said infrastructure investments will receive a big boost amid the credit support from state-owned banks. “China [GDP] has the potential of growing 6 per cent or even higher this year,” he said on the sidelines of the “two sessions”. Beijing has also altered its regulatory course, which dealt heavy blows to tech, after-school tutoring, entertainment and energy-intensive industries in the second half of last year. Tang Yao, an associate professor with Peking University’s Guanghua School of Management, said the GDP target is very likely to be accomplished with Beijing’s reserve policy tools helping offset external uncertainties. “Policymakers should be quite clear that the high level of exports last year wasn’t normal,” he said, adding that export growth is declining “but hasn’t surpassed our expectations based on January-February data”. Tang said China has room to improve its pandemic-control policies, as the nation’s current zero-Covid policy has been strictly implemented, which will help unleash the growth potential of the hard-hit service sector. Consumption contributed to 65.4 per cent of last year’s GDP growth, compared with 13.7 per cent from investment and 20.9 per cent from net exports. “The most pressing thing is to effectively and efficiently implement supportive policies outlined in the government work report,” Tang said. “It’s too early to talk about other tools now.”