China’s ‘two sessions’: Beijing set to signal post-Covid economic confidence

China’s political elite will gather in Beijing this week for the year’s biggest legislative set piece, known as the “two sessions” or lianghui , facing a number of major political challenges, including the aftermath of the coronavirus and the ongoing rivalry with the United States. In this instalment of a series looking at the agenda, we examine why Beijing is likely to use the event to highlight its economic achievements.

Beijing is set to send a message of unparalleled success in its economic recovery from the coronavirus pandemic and detail how it will achieve new targets over the next five years during the “two sessions” this week.

A total of 5,000 delegates from the National People’s Congress, the country’s legislature, and the top political advisory body, the Chinese People’s Political Consultative Conference, will be attending the main political gathering in the capital.

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The annual meeting in the Great Hall of the People is likely to be filled with congratulatory messages extolling China’s recent achievements in economic development, reform, and successfully bringing the pandemic under control, analysts said.

China was the only major economy to post positive growth last year, expanding at 2.3 per cent, while economies in Europe and the United States were ravaged by the pandemic.

With Covid under control and a new US president, Chinese authorities will want to boost market confidence in China’s economic future
Dan Wang

The US economy suffered its worst contraction since the second world war, falling by 3.5 per cent last year, and the euro zone shrank by 6.8 per cent.

“With Covid under control and a new US president, Chinese authorities will want to boost market confidence in China’s economic future,” said Dan Wang, chief economist at Hang Seng Bank China.

“I think the two sessions will highlight areas where China poses a positive image to the world, including industrial plans to reduce carbon emissions, financial and economic opening, and measures targeting low-income groups.”

China’s growth this year is forecast to be between 7 to 9 per cent, higher than estimates for the US of between 3.5 and 6 per cent. Some analysts have even tipped China to overtake the US as the world’s biggest economy by 2028, four years ahead of Beijing’s official prediction, due to the countries contrasting recoveries from the coronavirus.

The rapid economic rebound has been a source of confidence for the nation’s top policymakers, including President Xi Jinping, who said in November it was “entirely possible” to become a high-income nation by 2025 and to double the country’s gross domestic product (GDP) by 2035.

China did not set an official GDP growth rate target at the 2020 two sessions, and some analysts say it may be scrapped again this year.

Even if a target is set, it will not be accompanied by an “at all costs” emphasis from the government, as Beijing is expected to focus more on things like employment and the fiscal budget, said Ding Shuang, chief Greater China economist at Standard Chartered Bank.

“Some government advisors have suggested replacing the GDP target with an employment target, as the recent Politburo meeting put employment as a top priority,” he said.

“However, it is widely recognised that China’s employment data, such as survey-based unemployment rate, needs to be improved further to become a leading target.”

China would probably set a growth floor of 6 per cent this year, leaving substantial room for outperformance given the low base in 2020, Ding said.

However, Wang said the government would likely eschew a specific GDP growth goal and instead focus on an “inflation target and specific measures to contain financial risks”.

Some local governments have already set growth targets in their own two sessions, with many provinces opting for growth of 6 per cent or higher. Some provinces like Henan, Hunan, and Shanxi are aiming for expansion of 7 to 8 per cent, while Hubei and Hainan have set goals of more than 10 per cent.

China’s leaders will also use the plenary meetings of the legislature and its top political advisory body to tout recent achievements in social policy, according to analysts.

The government declared it had officially ended extreme poverty late last year, saying 850 million people had been lifted out of destitution in an “unprecedented accomplishment” unmatched by any nation in modern history.

In terms of the government’s vision, they will use these average figures to boost people’s confidence, because the figures are indeed real
Ding Shuang

China’s GDP per capita, meanwhile, has been above US$10,000 for two consecutive years – more than tenfold above what it was two decades ago.

“In terms of the government’s vision, they will use these average figures to boost people’s confidence, because the figures are indeed real. It’s only the gap between the rich and the poor is increasing,” said Ding.

Frustration over inequality is widely prevalent in China. While the number of Chinese billionaires continues to grow, Premier Li Keqiang said last year more than 600 million people lived on a monthly income of just 1,000 yuan (US$154).

But with extreme poverty now in the rear-view mirror, Xi is embarking on a grand project of “comprehensive rural revitalisation”, an initiative to boost rural incomes and national confidence.

Last year, China’s 25-member policymaking committee, the Politburo, decided to focus on making the domestic market more resilient to external shocks as part of its so-called internal circulation policy.

Following the 2020 central economic work conference – an annual meeting of policymakers to chart economic priorities for the coming year – China’s leaders said 2021 should mark the start of the policy.

In 2019, China’s private consumption accounted for about 39 per cent of GDP, which was about 30 percentage points lower than the US and Europe, according to data from CEIC. It was also about 20 percentage points lower than developing countries such as India and Brazil.

As internal circulation requires a strong domestic market, the two sessions are expected to detail how to create more jobs and, more importantly, how to increase people’s income. - South China Morning Post

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