Great expectations, a tale of China’s Two Sessions

Politically, things are stable due to the Chinese government’s ability to act effectively against the virus threat.

BEIJING: 20/20 is an expression that is used to express good eyesight or perfect hindsight. As China’s delayed annual legislative meeting gears up, those trying to decipher China’s direction need to see and understand China’s past, present and future.

Most years the emphasis was on the GDP growth numbers, but this year there may not be even a GDP growth range given. More likely, there will be a number of goals in terms of existing efforts like achieving poverty eradication, and new efforts in terms of jobs, consumption, fiscal and monetary stimulus, and disposable income.

For a better perspective, people should look carefully at the point where past, present and future conjoin, China’s 13th Five Year Plan. This will be the last year of this Plan, part of a continuum of

Plans that reaches back to the founding of modern China. As such, the 13th Year Plan, like the Plans before it, build on the past, recognize the present and shape the future.

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Modern China’s past has witnessed unprecedented growth, but the inevitable “regression to the mean” of economic growth rates, trade and ideological frictions with existing powers, rising incomes and changing paradigms have steadily chipped away at China’s growth percentages.

So although China will add the equivalent of Australia’s entire economy to its economy in 2019, because of its previous growth and size, the increase will be larger in terms of real numbers, but smaller on a percentage basis. This “New Normal” growth will be the foreseeable future.

We are entering a postworld War II reality, where the ideological and practical paradigms have changed dramatically.

Yet, many economists and social scientists are content to sit in the eye of the storm, measuring change in ways that have become outmoded.

GDP, as a measure, is at best misleading in an age of global supply chains.

Communism, Capitalism, Socialism have lost their practical, if not ideological, edges, in a world where mixed systems are the rule, not the exception.

At the base of the change paradigm is technology, which is bringing about fundamental changes in the way our society is ordered and operates, equal to those caused by the Industrial Revolution.

Against this backdrop, the notion of who is on top will be less important than who survives.

Developed economies spend 20% on necessities, the rest of their economies are held up by an artifice of consumer desires and choices.

Covid-19 has exposed this soft underbelly that now threatens developed nations with an economic cataclysm.

How to restart the economic engines of national vehicles in free fall, due to a downward economic spiral of lost jobs and shrinking demand, at a time when past shortsighted monetary and fiscal policies have created debt bombs that defy defusing?

The best solution, more rather than less, global economic cooperation and trade. Increasing the efficiency of providing economic necessities, both individual and societal, will allow countries to maintain standards of living.

Globalization caused dislocations, but also brought down the cost of necessities, it needs to continue, as there are few viable alternatives. It would allow a sustainable approach to population growth, the elephant in the room few are willing to talk about. A basic economic and social net would make the necessity of having children as a retirement hedge, in poor countries, disappear. In turn, there would be more resources per person and less need for division of lands and wealth for those with little of either.

In view of these larger issues, and China’s need to respond to the daily media attacks, while steering its economic recovery and guarding against a second viral wave, expect the Two Sessions to bring more guidance on a laundry list of issues concerning international and domestic issues.

The government will probably highlight its Covid-19 response and planning, urging cautious optimism that a second wave can be avoided while the economy opens up.

Worsening relations with the US and an associated list of other countries, who look at China’s socialist system and its success as existential threats. In addition, there are leaders who are using China as a scapegoat for their botched handling of Covid-19 and its economic fall-out. The combination has created an ugly “lynch mob” mentality where people who say they value the “rule of law”, are insisting China is guilty until it proves itself innocent.

This means China must identify effective political responses in addition to dealing with the virus and its economic consequences. If “wolf warrior” diplomacy is not perceived to be working, expect an indication of how China intends to change this.

China will continue to stress its “opening up” activities and look to make progress on trade and infrastructure projects like the BRI and RCEP. Look for guidance on how China views itself at a time of global crisis and the leadership vacuum created by Donald Trump.

It is looking like China will have a strong V-shaped recovery, but it could turn into W shape, if efforts to control the pandemic in the rest of the world are ineffective, or China experiences a second wave of infections. Either or both, would affect demand, which would, in turn, eat into manufacturing, jobs, wages and consumer demand.

China will have a time advantage as it will be able to produce when other countries are unable to. Look for clues on how China’s international trade policies will be identified in terms of goals, as these will probably be the basis of the next 14th Five Year Plan, which will be adopted in 2021.

In terms of guidance, China needs to transition its micro/small/medium entities (MSMES) from foreign export markets, where demand has dropped, to domestic markets, where there will be unmet demand for foreign imports. This transition will require targeted financing and regulatory oversight, which is not overburdensome. The question is the means and methods China will use.

Consumption remains a concern as people react to uncertain times. Three months of consumption have been lost and will not come back. But businesses seem to be recovering and there seems to be a willingness to spend as automotive sales, both foreign and domestic, show.

Politically, things are stable due to the government’s ability to act effectively against the virus threat and by comparison to the missteps of other governments. Together with the 2009 financial crisis, the Covid-19 crisis has solidified the Chinese people’s support for China’s unique system and path.

China’s Two Sessions face new means, methods and milieus. It is a time of great expectations, so expect this Two Sessions’ meeting to be unlike any before as China looks to answer its own needs and relationships in a changing world.

Einar Tangen is a Beijing-based China analyst.

China will continue to stress on its “opening up” activities.