Congress sees Beijing rule out changing tack
China’s ruling Communist Party has issued a bullish response to Western critics, ruling out changes to the country's economic or defence policies, despite clashes over its massive trade surplus and Taiwan.
At the opening of the annual session of parliament, the National People’s Congress, Prime Minister Li Qiang made it clear that he expected the economy to recover without significant government intervention, despite a property market crash and high youth unemployment.
International bankers and analysts had been calling for a stimulus package, particularly to increase consumer spending.
In his “work report” – the equivalent of a King’s speech in Britain and an annual budget rolled into one – Li also removed the government’s previous wording that future reunification with Taiwan would be “peaceful”.
The defence budget will increase by 7.2%, the same as last year, and well above the 5% target rate for annual economic growth, as Beijing continues to modernise its armed forces and, Western analysts say, prepare for the possibility of war over the Taiwan Strait.
The event was presided over by President Xi Jinping, and the work report not only paid tribute to his “core position” in the party but also bore his stamp.
His control over the party and China’s government was also emphasised by a decision to scrap the expected press conference by the prime minister, which has been an annual event at the congress for the past 30 years.
It was the only regular occasion when foreign and domestic journalists could put questions to a member of the politburo, and forced previous holders of the office to address sensitive issues such as China’s wealth inequalities and the Tiananmen Square massacre.
In recent years, questions had to be submitted in advance, but the announcement that there would be no press conference at all caught journalists by surprise. No explanation was given, though a spokesman said there would be more press conferences by lower-level officials to compensate.
The congress, which meets for a week every year, has to approve all legislation but has never voted down any proposal already approved by the politburo.
Accompanied by tight security but less pomp and circumstance than the five-yearly Communist Party Congress, it is nevertheless strong on ritual. The prime minister gives the opening address to its nearly 3000 delegates from a lectern on stage in the Great Hall of the People on Tiananmen Square, in front of the massed ranks of the party central committee, with Xi in pole position.
Although the congress has little power in itself, its opening is used to send messages to provincial delegates, and also to the world outside China, about the thinking of the party leadership on key issues.
The messaging abroad is all the more important this year, with both China and the United States indicating that they wish to improve relations after a decade of confrontations over Taiwan, human rights, spying allegations and trade.
Li’s speech acknowledged that the Chinese economy had faced challenges in the past year, particularly as a result of the collapse of the property market and two of the country’s largest developers. Housing is now the main asset of most Chinese.
Financial analysts had been looking for a signal that the government would try to revive the economy with a stimulus package and even attempt to rebalance it in favour of consumption.
Its focus on manufacturing and domestic savings in recent decades has led to high growth rates but has forced businesses to export more and more goods that Chinese consumers cannot buy. This has led to calls in Washington and Brussels for more protection for American and European businesses, with the US raising tariffs on Chinese imports, and the European Union threatening to follow suit.
However, Li merely said that the government aimed to keep growth in disposable income stable, and continued to stress greater efficiency in manufacturing, particularly in the high-tech sectors where the West most fears low-priced competition.
His work report said last year's target for overall economic growth of 5.2% had been met, and that this year's target would be about 5%, well above the estimates of Western bank analysts.
They had suggested that raising the target would imply a forthcoming stimulus package, while lowering it would be signalling a recognition that the party leadership was becoming less ambitious.
Likewise, Li allowed for a slight rise in the target for urban employment, another key measure at a time when graduates are reporting difficulty finding well-paid jobs.
In keeping with its conservative approach, the report said the government deficit would be less than economic growth. It did, however, promise to increase cash transfers from central government to local authorities, which are heavily indebted, and promised a 1 trillion yuan (NZ$228.7 billion) “ultra-long-term bond” for investment in unspecified “major national strategies”.
Michael Pettis, a professor of finance at Peking University, said he expected the authorities to begin handing cash subsidiaries to consumers directly. “Beijing says it won’t do this, but there is no other way to boost growth without boosting debt even more,” he said.
The increase in defence spending and changes in wording over Taiwan were balanced by a softening of recent rhetoric about international relations more generally, and a promise to ease restrictions on foreign investment. –