6 takeaways from China’s ‘two sessions’ and the economic turmoil that followed
- Optimism and vows of stability at Beijing’s annual parliamentary sessions were followed by stock market losses and growing concerns over the Ukraine war’s impact on China
- From job growth and common prosperity, to regulatory crackdowns and zero-Covid goals, Chinese leaders addressed their most pressing priorities for 2022
After last week’s annual parliamentary meetings, which were overshadowed by Russia’s invasion of Ukraine, China’s stock market this week experienced a level of tumult rarely seen since the stock market meltdown in the summer of 2015.
Disrupted by its worst Covid outbreak in two years, and challenged by growing pressure from the West to condemn Russian aggression, China is grappling to tame economic headwinds, and its efforts have been further complicated by the US Federal Reserve’s rate-hike projection.
Here are the economic priorities listed out during the annual parliamentary meetings, known as the “two sessions”, and a rundown of how things have evolved this week.
China set its lowest gross domestic product (GDP) target in three decades, putting it at “around 5.5 per cent” for 2022.
Premier Li Keqiang said this goal is achievable but will require arduous efforts, while economists said it would come at a cost, especially in light of international sanctions against Russia for its invasion of Ukraine and the latest national Covid outbreaks.
In utilising the country’s reserve tools, China’s central bank announced last week that it would transfer 1 trillion yuan (US$158.3 billion) to the government’s coffers to help fund fiscal spending, provide tax rebates, support businesses and aid debt-ridden local authorities.
Li stressed the importance of preventing systemic risks and said the government would set up a fund to ensure financial stability, as he delivered the government work report to the National People’s Congress.
The National Bureau of Statistics said “the spring warmth has been felt”, with upbeat economic indicators in January and February showing a “better-than-expected” recovery.
But the optimism was quickly quelled by the stock market rout, a rise in capital outflow and concerns over Covid restrictions amid other long-time grievances pertaining to the property sector, a crackdown on Big Tech and sluggish private sector.
Liu He, vice-premier and economic tsar, chaired a meeting with senior economic officials on Wednesday and vowed strong measures to support the economy and boost market confidence.
To ensure stability and consistency with policy expectations, the officials declared that any policy that could have a significant impact on the capital market should be coordinated with the financial regulatory department in advance, while flagging the need for caution in unveiling contractionary policies.
There was a greater emphasis on job creation at the two sessions, as Li admitted that the task of stabilising employment is “more formidable”. The headline jobless rate is targeted at “within 5.5 per cent” for this year.
The latest unemployment rate is largely within the target, but lay-offs among workers aged 16 to 25 remain high, with the jobless rate rising to 15.3 per cent in combined figures for January and February, up from 14.3 per cent in December.
China plans to create more than 11 million new urban jobs this year, and it is bracing for a record 10.76 million college graduates. Li, in his farewell press conference as premier, said it would be “preferable” for China to create 13 million jobs this year.
China’s zero-tolerance policy in dealing with the coronavirus is increasingly at odds with the rest of the world, which has largely opted to loosen restrictions. There were suggestions and debates about loosening the strict controls, including the resumption of international exchanges, to help mitigate the disruption to economic activities.
Beijing has insisted that zero-Covid policy has been effective in preventing the spread of infections, but added that it will fine-tune the policy.
Following the conclusion of the two sessions, and amid the rapid surge of Covid-19 infections in the country, China has allowed the public to take rapid antigen self-tests to enhance early detection, in addition to implementing lockdowns and conducting mass screenings.
Researchers say the rapid antigen test market on the mainland could reach 34 billion yuan (US$5.35 billion) each month.
President Xi Jinping urged officials on Thursday to make Covid-19 control a top priority, and he said measures should be effective and precise to achieve maximum prevention and the greatest effect, at a minimal cost to the economy.
The government report touched little on the beleaguered real estate sector in the wake of Beijing’s regulatory crackdown and the China Evergrande Group debt crisis last year.
Read out by Li, the report pledged to stabilise prices of land and properties, as well as enhance stability.
And a report to lay out tasks by the state planner, the National Development and Reform Commission, said it will improve foreign debt management and prevent foreign debt risks in the property market.
Hours after the meeting chaired by Liu on Wednesday to prevent market rout, the Ministry of Finance pulled back a plan to roll out a nationwide property tax, as research showed that conditions were not yet ripe this year.
Private firms, common prosperity
China announced 2.5 trillion yuan worth of tax rebates in 2022, among a set of tax breaks and cuts for small businesses, which have been hit especially hard by the pandemic and Beijing’s crackdowns in sectors such as tech and private tutoring, which comprise mostly private companies.
China’s private sector is responsible for about 80 per cent of the nation’s urban jobs.
Wang Yang, No 4 in the party hierarchy, tried to allay fears over any perceived lack of support from the central government, in his discussions with representatives of business communities at the two sessions.
Wang said Beijing will “unswervingly” encourage and support the development of the non-public sector and will stick to its economic system that strives for the “common development of various forms of ownership”.
Wang called for confidence in the party’s policies, but analysts said more measures are needed to reassure the private sector, which is likely to continue suffering from the pandemic and economic slowdown.
There were only brief mentions of the common-prosperity strategy in the government report this year. It called for “in-depth research to acquire a sound understanding of major theoretical and practical issues such as the major goal of common prosperity and the way to reach it”.
Li said at the press conference that China will continue to open up and keep all companies on an equal footing.
Looking inward or opening up?
The two sessions underscored self-reliance in major areas of the economy, including agriculture, key commodities and hi-tech sectors, in the face of turbulent global markets and rising hostility from the US and its allies.
The government report did not mention any replacement of the phase-one trade deal with the US, nor of how to break the stalemate in an investment treaty with the European Union.
State media reported that the trade teams of both the US and China are maintaining normal exchanges, while the Office of the US Trade Representative said the US is “engaged in direct talks” with Beijing about its commitments under the phase-one deal and “the harmful impacts” of its industrial policies.
China also pledged in the government work report to press ahead with negotiations over its aspirations to join high-profile trade pacts such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement.
Beijing is also prioritising risk control and prevention for its Belt and Road Initiative this year, and pledged a green and low-carbon transformation of its overseas coal-fuelled projects.
Xinjiang, in China’s far west region, and Fujian province in the east, as well as the China-Europe Railway Express, were also singled out as areas of importance in the belt and road push.
Author: Wendy Wu, SCMP