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Beijing is expected to resist growing market pressure for much stronger stimulus to spur China’s economic recovery at its flagship annual political event this week, analysts have said, as President Xi Jinping focuses on turning the country into an advanced manufacturing superpower.
Thousands of delegates will descend on Beijing for the opening session of the National People’s Congress, China’s rubber-stamp parliament. Xi’s number two official, premier Li Qiang, is expected on Tuesday to deliver a “work report” outlining targets for economic growth and military spending as well as policy priorities.
The NPC will be scrutinised for signs of how the Communist party, which will celebrate the 75th anniversary of the People’s Republic of China this year, plans to deal with multiple geopolitical, demographic and economic challenges.
These include a real estate crisis, deflationary pressure and flagging investor confidence — with record low foreign direct investment in 2023 and stock market falls this year — as well as growing European and US resistance to China’s exports, especially of electric vehicles.
But in a break with precedent, Li will not hold a customary press conference as China’s premier has at the conclusion of the session every year since 1993, NPC spokesperson Lou Qinjian said on Monday. The press conference, though carefully staged, was one of the few opportunities for foreign and domestic media to engage China’s leadership.
“The only [popular] channel to dialogue with the top leadership is now closed,” said a government adviser.
“Pulling back on this practice for the first time in more than 20 years, at a time when there are great deal of questions about the prospects for China’s economy, and plans in the government for addressing concerns, does not exactly inspire confidence,” said David Bandurski, director of the China Media Project.
The Two Sessions — referring to the NPC and its affiliate advisory body, the Chinese People’s Political Consultative Conference — last for one to two weeks.
The NPC has little autonomy but Beijing uses it to pass laws, announce personnel changes and endorse its policies. Xi was inaugurated for an unprecedented third term as president at last year’s session, when he accused the US of “containing” and “suppressing” China.
Xi is expected to be more restrained on tensions with the US this year, after he met President Joe Biden in November in San Francisco. NPC spokesperson Lou said Beijing hoped for better co-operation with Washington after the upcoming US election.
Analysts believe — based on provincial gross domestic product forecasts this year — that Li will set a growth target of 5 per cent for the national economy. This would match last year’s figure, which was the lowest in decades.
But it will be more difficult to achieve in 2024, analysts said. Last year’s growth figure of 5.2 per cent was flattered by a low base of activity from the pandemic a year earlier.
“The government work report will aim to revive consumer and business confidence . . . through stimulus measures and measures to support the private sector,” said Neil Thomas, a fellow at the Asia Society Policy Institute’s Center for China Analysis.
Thomas added that any such proposals would be relatively restrained. “Xi doesn’t seem to be panicking and turning to massive stimulus or new approaches to try and revive growth. Xi sees China’s current economic wobbles as the short-term pain necessary to achieve the long-term gain of his vision of ‘high-quality development’.”
The party’s leadership body, the politburo, gave a possible foretaste of Li’s work report last week when it announced after its monthly meeting that “proactive fiscal policy must be appropriately intensified” and spoke of “prudent monetary policy”.
Economists said this was a hint that Beijing was planning only a restrained stimulus to support growth. Many economists have argued that more sweeping measures targeting consumption were needed to lift the economy out of the doldrums.
To achieve 5 per cent growth, Beijing would probably be forced to exceed its usual fiscal deficit target of 3 per cent of gross domestic product for the second year running, analysts said.
While this would normally be directed into infrastructure and housing through local governments, some believe Beijing will put more money into advanced manufacturing.
“Instead of really looking at infrastructure or the property markets per se, I think the focus will definitely be on the industrial policy for China. So that’s where I expect the extra spending to go,” Heron Lim, economist with Moody’s Analytics, said. “A stimulus ‘bazooka’ as it has been traditionally designed, I don’t think will come.”
Logan Wright of Rhodium Group, who estimated that growth last year was just 1.5 per cent, told a CSIS webinar on Thursday that he expected it to rebound this year to 3.5 per cent as the property market stabilised and consumption recovered. But he predicted growing trade frictions as China invested in excess capacity.
“One of the key stories this year will be China’s exports to the rest of the world, particularly in electric vehicles, solar panels [and] sectors that have benefited from Chinese industrial policy,” he said. “The politics of external imbalances are going to come back.”
