{"id":9780,"date":"2022-04-04T07:30:41","date_gmt":"2022-04-04T07:30:41","guid":{"rendered":"https:\/\/focus.cbbc.org\/?p=9780"},"modified":"2022-03-29T03:04:29","modified_gmt":"2022-03-29T03:04:29","slug":"chinas-two-sessions-2022-analysis-cbbc","status":"publish","type":"post","link":"https:\/\/focus.cbbc.org\/chinas-two-sessions-2022-analysis-cbbc\/","title":{"rendered":"China’s ‘Two Sessions’ 2022: A CBBC Analysis"},"content":{"rendered":"

This year\u2019s Two Sessions shows the Chinese Government sticking to its traditional approach of supply-side reforms and limited stimulus, but its targets remain ambitious given the current headwinds and geopolitical challenges. What does it mean for foreign-owned businesses in the country? asks Torsten Weller<\/strong><\/h2>\n

This years\u2019 annual plenary meetings of the National People\u2019s Congress (NPC) and the Chinese People\u2019s Political Consultative Conference (CPPCC) \u2013 also called the Two Sessions (or Lianghui<\/em> in Chinese<\/span>) \u2013 stood in sharp contrast to the general political atmosphere both in China and worldwide. While the country faces the worst Covid outbreak since the start of the pandemic and the world watches in horror at Russia\u2019s invasion of Ukraine, China\u2019s government is focusing \u2013 almost stoically \u2013 on its policy of fiscal consolidation and limited monetary support.\u00a0<\/span><\/span><\/p>\n

Jobs and innovation remain Beijing\u2019s answer to nearly all policy problems, and while this is good news for businesses, the focus on \u2018stability\u2019 also harbours new risks. A lack of consensus over the direction of Xi Jinping\u2019s policy of \u2018Common Prosperity\u2019 and the uncertainty over Li Keqiang\u2019s successor will make \u2018reactive\u2019 policy adjustments more likely, thus increasing uncertainty for both foreign and domestic businesses in China.\u00a0<\/span><\/span><\/p>\n

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Background\u00a0<\/span><\/span><\/h4>\n

First things first. China\u2019s government wants its economy to grow by at least 5.5% this year. This is slightly lower than last year\u2019s target of 6%. The figure itself came as scant surprise as Chinese provinces \u2013 which published their own targets ahead of the Two Sessions \u2013 had already zeroed in on the same objective.\u00a0<\/span><\/span><\/p>\n

Yet as Chinese Premier Li Keqiang pointed out in his traditional press conference at the end of the Two Sessions, China\u2019s ever-increasing GDP \u2013 which reached \u00a313.8 trillion last year \u2013 makes it more difficult to reach the stellar growth numbers seen a decade ago. In fact, even a 5.5% increase would add around \u00a3760 billion to the Chinese economy \u2013 more than the whole economy of the Netherlands.\u00a0<\/span><\/span><\/p>\n

Yet achieving this goal won\u2019t be easy. Several analysts, including CBBC, therefore expected a significant monetary stimulus in the first quarter of the year. Yet the Chinese government has largely stuck to its supply-side oriented fiscal measures. As Li Keqiang explained at the press conference on 11th March, tax refunds and fee reductions are considered the fastest and most direct way to help businesses.<\/span><\/p>\n

Nonetheless, China will transfer around RMB9.8 trillion to local governments and increase subsidies to cash-strapped localities by around 18% compared to last year. In total, government spending will rise by 12.8%.<\/span><\/p>\n

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Nominal GDP value change and official GDP growth (in %) (Source: National Bureau of Statistics, Xinhua)<\/em><\/p>\n

But Li has also made clear that the extra money will focus on two things. First, social services, such as education, healthcare and better access of social services for migrant workers. Public spending on education should remain at around 4% of GDP, with a greater emphasis on reducing tuition fees for poorer kids. The government also wants to extend its basic healthcare coverage and raise coverage of treatment for the most common diseases to at least 70%. Finally, digitalisation of social services should make it easier for migrant workers to access social benefits.\u00a0<\/span><\/span><\/p>\n

Second, local governments are expected to do more to help Micro- and Small Enterprises (MSEs). Those companies \u2013 which account for over two-thirds of Chinese private businesses \u2013 were particularly hit by the pandemic, especially in the hospitality and tourism sector. A survey conducted by researchers at Peking University in collaboration with the Ant Group Research Institute found that only 30.6% of MSEs have returned to pre-pandemic turnover levels.\u00a0<\/span><\/span><\/p>\n

At the same time, MSEs have become the preferred solution to deal with unemployment. Rather than providing unemployment benefits \u2013 for which many local governments don\u2019t have funds anyway \u2013 Chinese authorities have promoted self-employment as a way to keep people off the streets. Supporting these businesses via loans and tax cuts will therefore become an increasingly important task for Chinese policymakers.<\/span><\/p>\n