Premier Li Keqiang has pledged that China will offer up a variety of “oxygen-supplying” measures to help counter risks to economic growth in 2022. At the last major press conference of his 10-year tenure, Li called the coronavirus pandemic the “biggest challenge” of his second term. He also struck a cautiously optimistic tone on achieving gross domestic product (GDP) growth of “around 5.5 per cent” this year, to dispel market worries triggered by the ongoing Russia-Ukraine war, scattered coronavirus outbreaks and rising global uncertainties. “A variety of complex environments are evolving. Uncertain factors are rising,” Li said. “It must be supported with relevant macro policies.” Since rising to the premiership in 2013, Li, 66, has spearheaded the nation’s economic transformation and promoted “mass entrepreneurship and innovation”, with the pace of expansion falling from previous trends of double-digit growth amid a dwindling demographic dividend, higher indebtedness and industrial overcapacity. China’s GDP growth target is within reach, ‘but it will come at a cost’ His second term was accompanied by a trade war with the United States that has forced the government to rely more heavily on the domestic market and home-grown technological innovations for growth; an unprecedented pandemic that has entered its third year; spillover effects of the US Federal Reserve’s monetary tightening; and geopolitical conflicts. “It’s like climbing a high mountain,” the premier said of the government’s efforts to meet its desired development targets in the face of intense and numerous headwinds. “If you want to climb a 1,000-metre mountain, and then want to climb 10 per cent higher, then 100 metres is fine. However, if you want to climb a 3,000-metre mountain and then want to climb 5 per cent higher, it will be 150 metres. And the conditions will have also changed, with lower air pressure and less oxygen.” Based on China’s GDP size of US$17.7 trillion last year , the newly set target means that the country’s economic size would need to increase by nearly US$1 trillion, or roughly the same size as the Netherlands’ GDP. Such an ambitious goal has been heavily scrutinised and questioned, particularly overseas, especially as Russia’s invasion of Ukraine has sent shock waves through global markets and placed China at odds with the US-led coalition that has moved to cut off Russia. However, China’s GDP growth target was decided in December at the closed-door central economic work conference , well before the war had broken out and before the Omicron coronavirus variant had ravaged Hong Kong and spread to the mainland. The target was not subsequently adjusted, despite abrupt changes in the international and domestic situations in late February. Morgan Stanley, which has long been bullish on China’s growth prospects, cut its 2022 growth forecast to 5.3 per cent on Thursday. ING Bank, which revised down China’s growth forecast to 4.8 per cent in late February, said earlier this week that it would consider revising forecasts based on geopolitical tensions. ‘It’s very special’: China’s central bank to boost Beijing’s fiscal coffers The world’s second-largest economy has already rolled out a list of supportive policies, including setting a quota of 3.65 trillion yuan (US$577 billion) for local-government-issued, special-purpose bonds to fund construction projects . It has also announced 2.5 trillion yuan worth of tax and fee cuts and has front-loaded the construction of 102 megaprojects. Beijing, which controls about 200 industrial giants, major state-owned banks, and thousands of local financial vehicles, is well known for having a deep policy toolkit that it can utilise to help achieve its growth goals. The country’s monetary policy easing is already on the cards – a 10-basis-point rate cut was announced in January, record-high levels of bank credit were extended in the month, and the central bank said this week that it will pay 1 trillion yuan from its profits to the government’s coffers this year. Li explicitly mentioned that his cabinet reserved policy room last year by setting a lower growth target, and that fiscal policy will take on a big role this year. If [tax rebates] work well, we will increase our support Premier Li Keqiang The net increase of government expenditures – which will be supported in part by profits collected from special financial institutions, as well as from a fiscal surplus – will be “no less than 2 trillion yuan”, and the sum will mainly be used to facilitate the slashing of taxes and fees by 2.5 trillion yuan this year, including 1.5 trillion yuan that will be returned to taxpaying companies, he said. “This is similar to supplying oxygen to climbers,” the premier said, continuing to use his mountain metaphor. “If [tax rebates] work well, we will increase our support.” Beijing also expressed its willingness to adjust its strictly implemented zero-Covid policy, which has taken a massive toll on the nation’s contact-intensive service providers and is also hindering international exchanges. While calling for continued fiscal support, bank-loan renewals, and local waivers or exemptions for utility bills and rent, Chinese leaders have been trying to keep foreign business and multinational companies onshore, such as by expediting travel . China’s ‘supply chain security, competitiveness’ under threat “We will make prevention and control more scientific and precise, in accordance with changes in the epidemic situation,” Li said. “We will accumulate experience and respond to possible changes in a timely manner, so that the flows of logistics and people can gradually become orderly and smooth.” China’s zero-Covid policy stands in stark contrast to that of Western countries, which have largely advocated for living with the virus and reopening businesses. The cost is evident, as more than a dozen of Chinese cities have reported cases, and a massive outbreak in Hong Kong has already delayed the election of the chief executive . “The central government is very concerned about the life, health and safety of Hong Kong citizens. The Special Administrative Region government should shoulder the main responsibility of fighting the epidemic, and the central government will give its full support,” Li said. State leader vows support for Hong Kong’s Covid fight, slams private hospitals Li’s annual government work report was approved at Friday’s closing of the parliamentary session, with 2,752 delegates voting in favour, three in opposition and another three abstentions. Shen Jianguang, chief economist at China’s e-commerce giant JD.com, said meeting the nation’s GDP target will be challenging. China’s economy was trending downward with an economic growth rate of 4.9 per cent in the third quarter and 4 per cent in the fourth quarter. In the first two months of this year, China’s export machine continued its good momentum, with a 16.3 per cent rise . Domestically, however, weak demand remained an issue. Despite a record high of new loans in January, the small business index of the official manufacturing purchasing manager’s index dropped by 0.9 points in February. “Resuming an upward economic trend in the second quarter will be key [to achieving the GDP goal],” Shen said. “The authorities must strengthen the policy of focusing on economic development.” Policymakers are generally optimistic for the country’s economic future, citing China’s resilience shown in the fight against the pandemic and other international events. “China has a big market, and the government has a deep toolkit,” said Liu Rihong, a department head with the Research Office of the State Council. Beijing has already scaled back its regulatory campaign on big tech, after-school tutoring and property sectors, which caused market turmoil and generated fear among entrepreneurs, fresh university graduates and developers in the second half of last year. It also hinted at a relatively lower priority for such medium- and long-term issues such as the income gap, debt reduction and decarbonisation goals – all of which could drag down growth. Russia-Ukraine war upends hopes for global climate action “China’s modernisation is still a long-term process,” Li said, pointing to the importance of boosting development. In addition to driving GDP growth, Li said fiscal and monetary policy must be carried out for the purpose of prioritising employment, which has heaped pressure on policymakers, especially as a record-high 10.76 million college graduates are expected this year. Beijing set a target of creating more than 11 million new urban jobs this year, having added 12.69 million last year, although Li said it would be “preferable” for China to create 13 million. The government has also responded by prioritising tax rebates for micro and small firms before end-June, since they employ a vast majority of the urban workforce, while also promoting more flexible contracts for workers. The Chinese economy will surely be able to climb over the hurdles and achieve the main goals Premier Li Keqiang Additionally, the government has budgeted the use of a 100 billion yuan unemployment fund to stabilise jobs and boost occupational training. Li is likely to be one of many senior cadres who will leave the centre stage of Chinese politics at the 20th Party National Congress this autumn, though President Xi Jinping, the nation’s most powerful leader since Mao Zedong, could stay after the two-term limit was abolished in a 2018 constitutional amendment. “The Chinese economy will surely be able to climb over the hurdles and achieve the main goals,” the premier said, giving credit to Xi’s leadership. “Thank you. Thank you, everyone,” he said in English, waving goodbye to reporters after the two-and-a-half-hour press conference. Additional reporting by Orange Wang