BOFIT Viikkokatsaus / BOFIT Weekly Review 2024/06

China’s National Bureau of Statistics (NBS) reports that GDP growth last year varied in the range of 4–6 % at most of the provincial level regions. Some smaller provinces such as Hainan and Tibet recorded higher growth numbers. Many provinces failed to hit their official targets. Of the largest provincial economies, Henan and Hunan, experienced GDP growth of 4–5 %, or nearly 2 percentage points below their own growth targets.

Provinces in China have long had incentives to report unrealistically upbeat economic figures to meet official targets. It should therefore be taken as a healthy sign of improvement that many provinces are now willing to report GDP growth figures that undershot their own official targets. One major issue with China’s provincial-level GDP reporting used to be for a long time that the sum of GDP activity reported clearly exceeded the national GDP figure reported by the NBS (BOFIT Weekly 11/2016). This problem now seems to have abated. The difference between the aggregate of provincial GDP contributions and the national GDP figure is now quite small. The biggest reason for this reconciliation is that many regions were caught fudging their growth figures, with the GDP figures of Liaoning, Shandong, Tianjin, Jilin, Inner Mongolia and Heilongjiang now revised considerably downward.

One reason provinces miss their growth and production targets is their current struggle with economic headwinds. Many local governments are highly leveraged after years of massive deficits to boost economic growth. Covid measures also forced them to burn through their assets and their revenue base shrank due to the collapse of the real estate sector. According to the IMF’s latest estimates, provinces have assumed local bond debt equal to 32 % of GDP and debt equivalent to 48 % of GDP from off-budget local government financial vehicles (LGFVs). Official figures show that the debt-servicing costs for local government bonds alone corresponded to roughly 1 % of GDP last year. Even with slight reductions in key policy rates by the central bank, their debt-servicing costs rose by 10 % y-o-y, twice as fast as the nominal GDP.

Beijing is justifiably concerned about local government indebtedness. It is the central government that is ultimately called upon to bail out local governments, even if the central government has long stressed to local governments that they need to take care of their own debt problems and not treat LGFV indebtedness as public debt. In January, the central government ordered deeply indebted provinces to suspend or slow their investment projects. The named provinces included Tianjin, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Guangxi, Chongqing, Guizhou, Yunnan, Gansu, Qinghai and Ningxia. All these provinces are smaller than average in terms of their GDP contributions.

The top province-level administrative areas of Beijing, Shanghai and Guangdong have all targeted 5 % GDP growth this year, indicating that yet-to-be-announced national target will be the same as last year, around 5 %. The growth targets of other provinces mostly fall in the range of 5–6% with just a few exceptions (Tianjin 4.5 %, Hainan 8 % and Tibet 8 %). About half of regions have reduced their growth targets from last year (typically a half percentage point) and just a handful have raised their growth targets.

2024 growth rates and growth targets for Chinese provinces with largest GDP numbers

  Nominal growth 2023, % Real growth 2023, % Target 2024, %

GDP trillion yuan

Guangdong 4.8 4.8 5 13.567
Jiangsu 5.0 5.8 5 12.822
Shandong 5.1 6 5 9.207
Zhejiang 5.8 6 5.5 8.255
Sichuan 6.2 6 6 6.013
Henan 1.6 4.1 5.5 5.913
Hubei 5.8 6 6 5.580
Fujian 5.0 4.5 5.5 5.436
Hunan 5.2 4.6 6 5.001
Shanghai 5.4 5 5 4.722
Anhui 5.5 5.8 6 4.705
Hebei 4.7 5.5 5.5 4.394
Beijing 5.3 5.2 5 4.376

Sources: China National Bureau of Statistics, provincial governments, CEIC and BOFIT.

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