Stockholm (Ekonamik) – China’s top two political bodies convene this week to set the country’s economic direction for the year ahead. Lianghui, the two-week long double meeting at Beijing’s Great Hall of the People, kicked off Sunday with the Chinese People’s Political Consultative Conference, to be followed by the launch of the 13th National People’s Congress (NPC) on Tuesday.
The congress, which will receive 3,000 delegates from around the country, is largely ceremonial, but announcements made there help shed light on emerging government policy.
China’s economy, which has been losing momentum from slowing domestic consumption and tension from the trade war with the United States, will top the agenda. The meetings will also be an opportunity for President Xi Jinping to reaffirm and consolidate power at the party level, in part through his evaluation of China’s global position and economic outlook ahead of China’s 70th independence anniversary on October 1.
Prime Minister Li Keqiang revealed the official economic growth target on Tuesday to be between 6.0% and 6.5%, below the 6.6% target for 2018 and the lowest rate since 1990. Morgan Stanley economist Robin Xing predicts lawmakers will continue to adopt pro-growth measures, including a 1.6 trillion yuan ($240 billion) fiscal stimulus package comprised of bond issuance and tax cuts.
Local government bond issuance will finance additional infrastructure investments, which could total more than 2 trillion yuan ($298 billion). Taken together, this is expected to push the budget deficit-to-GDP ratio up to at least 2.8%, up from 2018’s 2.6% with a likely ceiling of 3%, to placate concerns over fiscal soundness. The central bank is also expected to further cut the required reserve ratio in order to allow local banks to provide more lending and deal with bad loans, but no change to benchmark lending rates is expected.
China is also stepping up moves to encourage foreign investment in securities and bond markets, launching trading connect programmes and granting overseas investors a higher quota.
The trade war with the U.S. will also be high on the agenda. Following a report in the Wall Street Journal that Washington and Beijing could reach a trade deal at the end of this month to end most of the U.S. tariffs levied against China in exchange for China allowing in more U.S. exports, China will likely highlight recently announced draft laws on foreign investments and patents to placate the U.S. on intellectual property and technology transfers.
A formal agreement could be reached at a summit between U.S. President Donald Trump and Chinese President Xi Jinping at the end of the month. The news, which led U.S. stock futures to rise briefly Monday before sliding back, “reinforces the view that from a short-term macroeconomic perspective, the U.S.-China trade deal is the only game in town,” according to Jeffrey Halley, a senior market analyst at OANDA.
China is also expected to signal responses to allegations that Chines companies, in particular Huawei Technologies, pose a security threat, and that the Belt and Road Initiative (BRI) which builds infrastructure projects in developing countries is creating debt traps for its recipients, particularly in Malaysia and Sri Lanka.
Other items expected to be discussed are possible reform initiatives on land ownership to spur agricultural productivity to narrow the urban-rural development gap, a tax cut to boost consumer spending power, and a shift to high-end manufacturing and service sector upgrade through artificial intelligence to upgrade its industrial development policy to address imbalances and support long-term growth. Current tense relations with Taiwan and the failure of the U.S. and China ally North Korea to reach a denuclearisation deal are also likely to be on the agenda.
Image: The 1st Session of the 12th National People’s Congress (Wikimedia Commons)