All eyes and ears on two sessions

This is not exactly the best of times to be an economic commentator. Considering that geopolitical tensions and uneasy trade winds are making the overall picture hazy, it would be even more difficult to hazard a guess on the eventual course of the economy, particularly in China.

However, in my experience, China has continued to surprise the world over the past decade with its pragmatic financial moves and it would be no surprise if it were to do so this time round. Experts across the world are pinning hopes on the two sessions to offer cues, albeit on policies that China would pursue to keep economic and industrial growth on an even keel.

Though there have been precursors in the form of policy changes, some experts believe they are just starters and the main course will follow at the two sessions.

All eyes, however, will be on the draft of the foreign investment law that will be submitted to the plenary meeting of the National People’s Congress. Once adopted, the unified law will replace the three existing laws on Chinese-foreign equity joint ventures, non-equity or contractual joint ventures and wholly foreign-owned enterprises.

Li Zhanshu, chairman of the NPC Standing Committee, said the draft demonstrated China’s resolute determination to open wider to the world. “China will not close its door to the world, but will only become more and more open,” said Li, adding that the law’s formulation and implementation would further boost the confidence of foreign businesses to invest in China.

Xiao Yaqing, chairman of the State-owned Assets Supervision and Administration Commission, said in a statement on the regulator’s website that “foreign businesses should actively participate in reform and development of central enterprises, and jointly explore ways of deep cooperation including mixed ownership”.

Kenneth Jarrett, senior adviser with the Albright Stonebridge Group, a global strategic advisory and commercial diplomacy firm in the United States, feels that the ongoing NPC session will offer important policy cues for foreign companies.

Jarrett felt that the real interest for foreign businesses would be to see the extent to which market-oriented economic reforms will figure in NPC deliberations and form part of the leadership’s policy response to a slowing economy.

He said there has been concern within the business community that China has been too State-centric in its economic policy, strengthening State-owned enterprises for example, rather than expanding the role of market forces in the economy.

The draft foreign investment law, he said, has elements that will be welcomed by foreign businesses — affirmations of “national treatment”, better intellectual property rights protection, the prohibition of forced technology transfer and the ability to compete for government procurement contracts, to give some examples. At the same time, he urges policymakers to take steps to further reduce barriers for foreign companies and step up financial sector liberalization.

Explaining his point further, Jarrett said that China needs to open up more professional services to foreign players in sectors like education, healthcare, internet-based services, tourism, e-commerce and legal services, which are still largely off-limits to foreign companies.

But the biggest change needs to be in how the government views the financial sector, he said. Financial services can help foster healthy competition within the economy, and should not be viewed as a tool that exists to support the State sector.

Aninda Mitra, a Singaporebased senior sovereign analyst at BNY Mellon Investment Management, is of the opinion that flexibility will be the key for Chinese policymakers and leaders at the two sessions. “A more flexible approach now will allow China’s growth model to remain supple and continue sustaining rapid strides well into the future,” he said.

“Continued geopolitical tensions may make it difficult for the NPC meeting to establish goals and policies for the year ahead. They go beyond the hurdles of overcoming deleveraging, or stemming a gradual worsening of the country’s balance sheet.

“This is because the authorities have become increasingly reliant on the maintenance of strict capital controls, tight management of the foreign exchange rate and greater creativity in the provision of central bank liquidity.”

However, Aninda points out that most of these rigidities can be reduced. One way ahead would be to make the GDP growth target more flexible. “A GDP growth range, say, 6 percent to 6.5 percent (which is what Premier Li Keqiang announced on Tuesday), would relax market expectations and lower policy intervention as a broader range of economic outcomes would become tolerable,” he said. “Another area is to take a more accommodative stance on trade issues so as to defuse trade and tech tensions sooner, rather than let them fester.”

Malcolm Riddell, founder of ChinaDebate, a US-based think tank, said he felt there would be a reaffirmation of commitment from policymakers at the two sessions to more reforms to keep the economy humming along until things are a little more stable.

Easing trade tensions, however, would likely come with a greater opening up of China’s domestic market, and that would also amount to significant reforms. By leveling the playing field between State-owned and private economic agents, greater product market reform would reinvigorate the most productive parts of China’s economy, say experts.