China bets on defence over economic growth

The annual Chinese National People’s Congress this week was expected to signal relief for China’s staggering economy. Instead, Chinese Premier Li Qiang announced an economic growth target of 5 per cent, with no government stimulus beyond $138 billion of special government bonds. For scale, consider local government debt, which was estimated to be $12.58 trillion – or 76 per cent of GDP – in 2022. The IMF and World Bank expect China’s debt issues, its ageing population, and broader geopolitical tensions to keep growth below the 5 per cent target. Since 2010, China’s annual growth rate has fallen by more than half. Its military spending has doubled in the same period, and Li announced a 7.2 per cent defence budget increase on Monday. Beijing will also expand investment in high-tech industries that American sanctions have tried to throttle. Xi seems willing to sacrifice economic growth in exchange for military muscle.