Peking The Chinese government sees difficult times ahead for the People’s Republic. “This year we face great tasks and many challenges in economic and social development,” said China’s Premier Li Keqiang on Saturday in his speech on the opening day of the so-called “Two Sessions”.
It is the second most important political meeting this year following the big party congress in autumn. The National People’s Congress (NPC), China’s sham parliament, and its advisory body are meeting in the Great Hall of the People in Beijing until March 11. Each year, the political gathering provides an outlook on the priorities of the Chinese leadership
This year, the meeting comes amid the deepening Ukraine crisis, in which China has sided with Russia. However, as expected, the war in Europe was only an indirect topic in Li Keqiang’s speech when the government’s statement of accounts was presented. Speaking to around 3,000 delegates in the Great Hall of the People in Beijing, Li spoke of “risks from abroad” and an “increasingly volatile and uncertain external environment”.
The Chinese government has set the economic growth target for this year, which is traditionally announced at the political meeting, at 5.5 percent. It is the lowest target in three decades. Nevertheless, it is at least at the upper end of the forecasts. Analysts had expected a growth target of 5 to 5.5 percent.
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Beijing announces support for the economy
The target is in line with market expectations, Wang Dan, chief economist at Hang Seng Bank in Shanghai, told Handelsblatt. “This is important to stabilize confidence in the market,” said Wang. Unemployment is the biggest challenge this year.
“Beijing has set such a high target mainly because it is a politically important year and unemployment is a concern,” Michael Pettis, a finance professor at Peking University, wrote on Twitter. “Many analysts doubt it can achieve that goal, but I think Beijing is still capable of GDP growth rates above 6 percent if it wants to.”
In the annual report, which both looks back on the past year and provides an outlook for the current year, supportive measures for the economy are pointed out in several places. “In our work this year, we must make economic stability our top priority,” Premier Li Keqiang said.
In the second half of 2021, growth in the world’s second largest economy had slowed significantly. The main reasons for this were the real estate market, which collapsed as a result of stricter regulation, which directly and indirectly accounts for a quarter to a third of economic output, and the effects of the corona pandemic.
In the fourth quarter, the economy grew by only four percent compared to the same quarter of the previous year. From July to September, the People’s Republic’s economy had grown by 4.9 percent compared to the same period last year, and by 7.9 percent in the second quarter. In 2021 as a whole, growth was 8.1 percent.
skepticism regarding foreign trade
In 2021, exports in particular supported the Chinese economy in view of weakening domestic consumption, China announced a record foreign trade surplus for the year as a whole. This year, however, the Chinese government takes a more critical view of this factor. “It is becoming increasingly difficult to maintain steady growth in exports,” says the government’s accountability report.
Prime Minister Li announced, among other things, support measures for the real estate industry due to the increased risks. In this way, the development of the rental market is to be accelerated, the construction of state-subsidised living space is to be promoted and inexpensive living space is to be promoted. Overall, government spending is expected to increase by 8.4 percent.
“The fiscal targets look conservative on the surface, but leave significant scope for stimulus that might be even stronger than the support they provided to cushion the pandemic in 2020,” said Bloomberg analysts Chang Shu and David Qu the technology sector is also an issue. Recently, a violent wave of regulations had shaken the industry. The current statement of accounts states: “We will improve the management of the digital economy”.
For Xi Jinping, China’s head of state and party leader and the country’s most important political leader, a stable economy is of paramount importance, especially this year. Because in autumn he wants to secure a third term at the big congress of the Communist Party (KP). While it’s a given among China watchers that he’ll get it, an economic slump would not reflect well on him as an all-powerful political leader.
Xi is also coming under pressure from China’s position in the Ukraine conflict. After meeting Vladimir Putin in early February, the two presidents issued a joint statement. Observers believe that Xi would probably not have decided to align himself so closely with Russia had he known how united the West is and how long the war would drag on. “This is possibly the biggest foreign policy misstep he’s ever made,” said Jude Blanchette, holder of the Freeman Chair in China Studies at the Center for Strategic and International Studies (CSIS).
Defense spending continues to rise
As is traditional, the opening day of the People’s Congress also announced growth in defense spending. China wants to improve its “military training and combat readiness,” according to Premier Li. The budget for the military is expected to grow by 7.1 percent this year – slightly higher than previously expected. Defense spending has increased every year for the past few decades. In 2021, the budget grew by 6.8 percent, compared to 6.6 percent in the previous year.
However, the growth in defense spending only relates to the official budget. However, China does not add up all of its military spending. For example, the costs for the Coast Guard and the Paramilitary Police (PAP) are not included. Although the PAP is primarily intended for domestic use, it can also be used abroad in an emergency.
Another important point in the Chinese government’s accountability report was Beijing’s view of its conflict with Taiwan. The Chinese leadership regards the island state as part of China, although it was never part of the People’s Republic founded in 1949 and has its own democratically elected government. She wants Taiwan to be “reunited” with China. Experts fear that Beijing might one day take the country by force. The war in Ukraine had raised concern among investors and observers that China might use the US distraction to attack Taiwan.
This year, too, the government’s annual report stated that the “reunification of China” would be pushed forward. What is new compared to last year’s report is that Beijing explicitly “vehemently rejects foreign interference” in the current document.
US President Joe Biden sent a delegation of senior former US defense and security advisers to Taiwan last Tuesday, including former presidential advisers Mike Mullen, Meghan O’Sullivan and Michele Flournoy. Biden wants to send a sign of support for the island, as US government officials are quoted by several media. Beijing reacted very angrily to the visit.
More: China miscalculates in the Ukraine crisis
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