Updated on Mar. 4, 2024, 1:55 a.m. ET
China’s two sessions, the state’s most important annual political meetings, open this week in Beijing where the country’s political elites will reflect on the broader trends in Chinese politics, offering a sense of what to expect in the coming year.
The capital will host concurrent meetings of the National People’s Congress (NPC), the top legislature, and the Chinese People’s Political Consultative Conference (CPPCC), the political advisory body to the Chinese Communist Party.
The CPPCC will hold its opening meeting Monday afternoon with chairman Wang Huning delivering its work report. But the bigger focus will be on the Chinese premier’s work report on Tuesday.
Economic issues to dominate
China’s economy, the world’s second largest, is growing at its slowest pace since 1990 and policy makers are grappling with how to steer it back to a recovery track.
The challenge is underpinned by deepening long-standing structural problems built up over past decades where growth has hinged on exports, and government investments that have resulted in local governments being overleveraged and drowned in debt. It is compounded by a real estate industry crisis and weak domestic demand depressing prices.
As an apparent stop-gap measure, Beijing is pushing banks to support its “white list” of approved property projects, but such efforts have yet to arrest falling housing prices and waning investor confidence in the real estate market, as well as the stock market and the overall economy.
Beijing has refrained from a big bazooka like the 4 trillion yuan [US$555.6 billion] bailout it engineered to buffer impact from the global financial crisis in 2008. But the landscape has also changed as has the Chinese Communist Party’s economic policy. It is underpinned by an apparent walkback of the reformist approach under President Xi Jinping’s ideology that encompasses a new development theory centered on advancing state enterprises and a retreat of the private sector.
Entities and assets owned by China's troubled property giant Evergrande Group have been sold to state enterprises, while a Hong Kong court has ordered its liquidation for failing to pay off more than US$300 billion in liabilities. A similar fate looms for rival -- and also indebted -- Country Garden Holdings. The company received a liquidation petition filed by a creditor to the Hong Kong High Court last week.
At the two sessions, lawmakers are likely to discuss how to fix the problem of the real estate sector, a major growth driver that accounts for a fifth of the country’s GDP and the bulk of an average household’s assets.
The rapid demise of the property market began when the likes of Evergrande and Country Garden sparked off a series of defaults after years of overleveraged and bad investments, weighing on the banking system. It has also piled on debts for local authorities which relied on land sales to fund infrastructure development and government operations.
Chinese political elites may also make detailed sense of Xi's "high-grade growth" model rooted in his priorities of national security and upgrading technology to fuel buy-side consumption. He has called for a new wave of large-scale upgrades among Chinese firms, and also consumers who are being encouraged to trade-in old equipment such as cars and home appliances to boost domestic demand and raise the overall development threshold.
Tightening control on national security
Externally, tensions and rivalry with its major trade partners like the United States and Europe continue, which pushed exports down by 4.6% in 2023, the first drop in seven years, while years of increasingly strong-armed tactics in the name of national security have spooked foreign investors.
Beijing expanded its anti-espionage laws when it revised the 2014 Counter-Espionage Law last April, taking effect in July 2023. It specifies acts such as carrying out cyber attacks against state organs, confidential organs or crucial information infrastructure as acts of espionage.
The American corporate due diligence firm Mintz was raided by Chinese authorities in March last year and subsequently fined US$1.5 million for allegedly conducting unauthorized statistical work in the country.
The following month, police questioned staff at the Shanghai offices of global consultancy Bain & Company. A few weeks later, state security officials conducted multiple raids on the offices of Capvision, an international advisory firm, across the country.
NPC spokesperson Lou Qinjian told journalists in a press conference on Monday that the foreign media misinterpreted that China’s expanded scope of counter espionage would increase the risks for foreigners and foreign companies in the country.
Lou said the revision took reference from international practices to clarify illegal acts and strengthen security for foreign investments in China.
Last week, Chinese lawmakers also approved a revision to the Law on Guarding State Secrets, to take effect on May 1, which will widen the scope of sensitive information to “work secrets.”
State secrets currently involve areas ranging from government and Communist Party decision-making to military and diplomatic activities, as well as economic development, science and technology.
The revised law requires government agencies and work units to protect pieces of information “that are not state secrets but will cause certain adverse effects if leaked.”
The Premier’s work report
The two sessions will begin when more than 2,000 CPPCC members meet on Monday. Its members include business executives, celebrities and prominent individuals.
It will be followed the next day by the opening of the NPC, China’s rubber-stamp parliament, with Premier Li Qiang delivering his first government work report to nearly 3,000 NPC deputies.
The report will review the past year’s economic performance and project the growth target and budget for the coming year. China’s economy grew at 5.2% in 2023, and analysts are expecting Beijing to target around 5% this year even though market consensus puts it at a lower 4%–4.6%. The International Monetary Fund predicts GDP to grow 4.6%.
The economic targets will also be broken down into narrower categories including consumer prices, jobs and agricultural targets.
The report will also lay out the fiscal and monetary policies for the year and principles for risk management. Market watchers will be looking to see if there is more fiscal support for the economy as local government debt balloons.
Xi’s “high-grade growth” is also expected to thread through, reiterating the priority of home-grown innovations in technology for manufacturing and service industries to boost self-reliance amid increasing trade tensions.
Defense spending will also be closely watched amid increasing geopolitical tensions and the rivalry between China and the U.S. where Taiwan is a lightning rod.
China increased its defense expenditure for 2023 by 7.2% to 1.55 trillion yuan (US$215 billion), an amount that critics claim to be smaller than actual spending. In contrast, the U.S.’s budget is US$886 billion approved by Congress in December.
Any increase in spending is likely to raise international concerns over a possible Chinese invasion of Taiwan.
Tensions have also risen in the disputed South China Sea amid what the Philippines, Japan and the U.S. claim to be greater Chinese aggression to stake its claims. Beijing says most of the region belongs to China.
On Monday, Lou reiterated that China is opposed to “camp confrontations” and “cliques” among these nations, adding that cooperation with its neighbors is “open, accommodating and not exclusive.”
Lou said China has maintained a “reasonable increase” in defense spending in recent years to enhance military strength in tandem with the country’s economic expansion.
“I’d like to stress that compared with big military powers like the U.S., China’s share of defense expenditure in GDP and government expenditure, as well as per capita and per-serviceperson defense spending, are all at a lower level.”
While the two sessions will be heavy on domestic affairs, they will also set the tone for foreign policy.
Since last year, Chinese diplomats have been fanning out a softer tone to partners and adversaries alike to shore up foreign investments, and a focus on stabilizing relations is expected to continue to regain investors’ confidence and capital inflows.
Foreign direct investment tanked last year, plunging by 82% from the previous year to the lowest level since 1993. Direct investment liabilities, a measure of foreign capital inflows fell to US$33 billion, according to data from the State Administration of Foreign Exchange.
China’s trade relations with its biggest trading partners like the U.S. and Europe have been clouded by increasing tech restrictions imposed on China amid security and technology rivalry between the world’s biggest economies.
Uncertainties
The two sessions this year come with some uncertainties, and therefore, announcements could be made during the legislative meeting.
The third plenary session of the CCP’s central committee – the party’s biggest decision-making body – usually takes place in autumn, shedding light on the economic direction and key appointments ahead of the two sessions. But it has not been held.
Li Shangfu was removed as defense minister with no explanation in October, Former Rocket Force commander Li Yuchao was also removed in August. The third plenum would strip their positions in the central committee.
Former foreign minister Qin Gang, who was dismissed last July, has resigned from the NPC.
The NPC meeting will end next Monday, with the CPPCC closing a day earlier. During the sessions, delegates will deliberate and rubber stamp the work report, growth targets and budget for the year. Breaking with tradition, the Chinese premier will not hold the regular press conference at the end of the NPC, the first time since 1993, Lou said on Monday.
The state-owned Xinhua News Agency reported that more than 3,000 reporters have registered to cover the two sessions.
Edited by Mike Firn and Taejun Kang.
Updated with NPC spokesperson’s comments and the two sessions’ closing dates.