China may want a “new leap forward” in “productive forces” — but President Xi Jinping may need to resort to an old tactic to hit the country’s ambitious growth target this year, one economist warns.

Beijing set its annual growth target at “around 5%” this year in the government’s annual work report released on Tuesday, sticking to a deficit-to-gross domestic product ratio of 3% for 2024 — down from a rare upward revision to 3.8% late last year.

Given a higher base effect, even the Chinese government admitted that meeting this year’s target “will not be easy” — particularly as the world’s second-largest economy remains afflicted by a litany of issues, from overcapacity and faltering price pressures to a festering real estate and debt crisis.

“The 5% GDP target is really ambitious. Even last year, it was the opening year from Covid and China achieved 5.2% (growth) mostly because of the rebound in consumption,” Wang Dan, chief economist at Hang Seng Bank (China), told CNBC on Tuesday.

“This year, we are not reopening again, and that means unless there is some ginormous infrastructure project, China will find it very difficult to actually reach the 5% [target],” she said.

“When it comes to the actual spending, the fiscal deficit is only 3% this year. If we think about it, the GDP growth will be about 5% — if it achieves the government target — and that means the fiscal expenditure as a percentage of the GDP will actually shrink.”

While scant on specifics, the work report appears to suggest Beijing is refraining from the aggressive, bazooka-like stimulus that some markets observers were expecting.

“Mostly it’s a contractionary, rather than an expansionary fiscal policy, so I think there has to be some kind of a project that is in similar size and quality of the Three Gorges Dam to really pull up domestic demand,” Wang added.

The Three Gorges Dam is a hydroelectric project that spanned the Yangtze River, which was initial approved in the early 1990s, but was only fully operational in 2015.

China has historically resorted to infrastructure building as a short-term fix to boost growth, particularly after the 2008-09 financial crisis.

Starting this year and “over each of the next several years,” Beijing said it will issue 1 trillion yuan ($138.9 billion) in “ultra-long” special treasury bonds in 2024 to fund major projects aligned with national strategies.

These bonds do not go toward the fiscal deficit and have only been issued thrice before, during the Asian Financial Crisis in 1998, for the capitalization of China Investment Corporation in 2007 and during the Covid-19 in 2020, according to Erica Tan, economist at Maybank.

Goldman Sachs economists said that this pledge is the “most important positive surprise” from this year’s government work report.

Premier Li Qiang also said that 3.9 trillion yuan of special-purpose bonds for local governments will also be issued this year — 100 billion yuan more than last year.

China’s real estate troubles are closely intertwined with local government finances, since they have historically relied on land sales to developers for a significant portion of revenue.

The property market slumped after Beijing cracked down on developers’ high reliance on debt for growth in 2020 — ensnaring some of its largest real estate players in bankruptcy and weighing on consumer confidence and broader economic growth.

“So far, the housing market is still in contraction and the hope for a housing market rebound is pretty much just gone, so that just leaves us with manufacturing and infrastructure,” Hang Seng Bank (China)’s Wang said.

Infrastructure development is the focus of one of 10 key government work tasks contained in this year’s work report, which pledges to promote integrated development between rural and urban areas.

China’s top objective is a vow to “modernize the industrial system and developing new quality productive forces at a faster pace” — underscoring the heavy emphasis on strengthening Beijing’s industrial prowess as a longer term growth driver.

“We should give full rein to the leading role of innovation, spur industrial innovation by making innovations in science and technology and press head with new industrialization, so as to rise total factor productivity, steadily foster new growth drivers and strengths, and promote a new leap forward in the productive forces,” Premier Li said in the work report, according to an official translation.

Some of the specific industries mentioned include artificial intelligence, new-energy vehicles, hydrogen power, biomanufacturing, commercial spaceflight, new materials and innovative drugs.

“The full-throttle emphasis on achieving industrial prowess indicates that the leadership will continue to direct credit and other resources towards growing advanced manufacturing capacity,” said Maybank’s Tan.

“While this is driven by their desire for economic security, the move will be closely watched by countries mindful of export competition from cheaper Chinese products.”