April 23, 2024

China says economy will grow ‘around’ 5 percent this year

BEIJING — China will target economic growth of “around” 5 percent this year, Premier Li Qiang announced on Tuesday, laying out Beijing’s plans to weather a slowdown that has shaken consumer and investor confidence in the world’s second largest economy.

China will make “full use of a new system for mobilizing resources nationwide” to achieve “breakthroughs in core technologies in key fields,” Li said in a speech at the Great Hall of the People to mark the opening of the National People’s Congress, China’s rubber-stamp parliament.

These included “disruptive and frontier technologies,” he said. The growth target is in line with economists’ expectations and only slightly below the 5.2 percent recorded last year, but is a long way from the double-digit growth of the early 2000s.

More than 5,000 delegates are gathered here for the annual meetings of the NPC and China’s top advisory body, events jointly known as the “Two Sessions,” which together set the policy agenda for the coming year.

It’s shaping up to be a difficult one. In the year since Xi Jinping, the country’s powerful leader, formally began his third term, huge property giants have gone into liquidation, foreign direct investment has dropped to 30-year lows and the markets began the year with a 10-percent slump.

Beyond those immediate pressures, Beijing is staring down mountains of local government debt, a shrinking population and the potential of renewed tensions with the United States as China becomes a focus of debate on the presidential campaign.

So far, the Chinese leadership appears ready to batten down the hatches, ride out the turmoil and focus on long-term bets to control the technologies of the future.

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Xi’s security-focused approach — which tries to defuse the most severe economic and financial risks while focusing on indigenous innovation in key emerging industries — “naturally lends itself to pushing the economy to line up with that long-term strategy,” said Diana Choyleva, founder of Enodo Economics, a consultancy.

“They’re trying to smooth what’s going to be a painful adjustment,” said Choyleva. “But that plan is very different from what foreign and international investors want to hear.”

This year is the first time Li has delivered a “work report,” after being promoted to No. 2 on the powerful seven-man Politburo Standing Committee in October 2022. Already, it appears he will be less transparent than his predecessor, Li Keqiang, who died of a heart attack only seven months after leaving office.

An NPC spokesperson on Monday announced that the premier, who is responsible for the day-to-day running of China’s economy, will not hold a news conference after the closing ceremony this year, ending a show of openness that has been in place since the 1980s. The press conference is one of the rare occasions when the Chinese public, and foreign observers, get to hear a top Chinese leader answering questions, even if they are pre-selected.

Policy signals at this year’s meetings are being watched even more closely because top Communist Party officials were expected to set out an economic agenda at a plenum late last year, but the gathering never took place.

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The delays and opacity have fueled concern that Beijing plans to muddle through the downturn with piecemeal policy support instead of bold measures to spur growth.

“The long delay of the plenum means there is no economic reform road map out there, at least not in the public domain,” said Nis Grünberg, lead analyst at MERICS, a China-focused German think tank.

Instead, Grünberg added, the consistent messaging from top Chinese officials suggests that state control will prevail, as the focus on security and “self-reliance” limits desire for liberalizing economic reforms.

Xi’s main announcement in the buildup to meetings was a callback to the Communist Party’s Marxist roots. In December, he instructed officials to unleash “new productive forces” to prevent a sharp slowdown, leaving foreign investors to puzzle through pages of jargon to work out what that means for markets and businesses.

“The essence of innovation is ‘establishing a new production function,’ which means introducing into the production system a ‘new combination’ of conditions and factors of production that have never existed before,” Chen Binkai, dean of economics at the Central University of Finance and Economics, explained to Qiushi, a Communist Party magazine.

Close observers of Chinese politics says Xi’s announcement is less about economic policy and more about establishing his position as an epoch-defining leader by following the example of past strongman rulers.

Mao Zedong, the founder of the People’s Republic, called for the “liberation” of laborers from feudal society. Deng Xiaoping, who unleashed market reforms in the 1980s, promised the “development” of production using science and technology.

Now Xi wants a high-tech upgrade to the Chinese workforce that can keep the economy afloat and secure dominance in strategically important emerging industries like clean energy, artificial intelligence, and semiconductors.

Economists broadly agree China needs to do away with the old growth model, which relied on debt-fueled construction. But there is little consensus about whether the leadership’s laser-focus on advanced manufacturing will be enough to prevent a sudden slowdown.

Some believe that officials would be better served by boosting consumption with a mixture of short-term subsidies and structural reforms to health and social care to make the less-well-off feel empowered to spend again.

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Prominent voices within China are warning that Xi’s policies favoring the heavy hand of state intervention have gone too far and are dampening innovation in policymaking.

“Officials at all levels no longer have the space to make decisions on their own, economic activity is constrained and less dynamic, and social freedoms have been restrained,” Yao Yang, dean of the National School of Development at Peking University, wrote in an article translated and published last week by Sinification, a newsletter.

In the academic journal originally published in December, Yao argued that decades of unfettered and unsustainable growth had landed China in a period of “rectification” comparable to that faced by the United States ahead of the 2008 financial crisis.

For Yao, the leadership methods of trying to reassert control — a crackdown on “over-marketization” of the economy and emphasis on Marxist notions of egalitarianism — had been excessive and spooked entrepreneurs and the wealthy.

“The Party’s official theories are still stuck in Marx’s doctrines and have fallen far behind the realities of the reform and opening period,” he said.

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