Investors were disappointed with the lack of any large-scale stimulus package at the start of a week-long meeting of China’s National People’s Congress.
The Chinese government maintained last year’s economic growth target of “around 5%” and announced plans to control the budget deficit at 3% of economic output, down from last year’s revised 3.8%. It also unveiled plans to issue 1 trillion yuan ($139 billion) of special ultra-long-term government bonds, which were not included in the budget.
The Chinese premier will break with recent practice and not hold a press conference, making it difficult for investors to learn more about policy direction.
The British “Financial Times” reported on March 4 that although the press conference held by the Chinese Premier at the end of the two sessions was carefully arranged, it was one of the few opportunities for Chinese domestic and foreign media to contact the leaders of the Chinese Communist Party.
“The only (open) channel for dialogue with the top leadership is now closed,” a government adviser said.
David Bandurski, director of the China Media Research Program, said, “At a time when there are a lot of questions about the future of China’s economy and the government’s plans to solve these problems, it is not fair to say that Xi Jinping has ended this practice for the first time in more than 20 years. Give people confidence.”
Xin-Yao Ng, investment director at abrdn, said, “Overall, based on the news released so far, I think it may be more disappointing,” and “Investors still hope for stronger fiscal measures to boost the economy.”
James Kniveton, senior corporate FX trader at Convera, said, “Stability remains the overarching factor in China’s policymaking, and the announcements so far appear to be in line with this philosophy.”
Alex Loo, macro strategist at TD Securities, said, “Overall, the message from the authorities is still the same, which may not help boost investor sentiment – given debt concerns and the intention to keep growth stable, the government will not launch a A bazooka-style stimulus package.”
To the outside world, Xi Jinping has rejected large-scale economic stimulus policies and emphasized “high-quality development.”
The Wall Street Journal reported on March 5 that the question is whether Xi can lead China on a new path and smoothly transition from high growth to low growth without plunging the economy into long-term stagnation.
After three years of distortions caused by the epidemic, the long-term development trajectory of China’s economy is gradually becoming clearer. If this trend of economic stagnation had occurred during the tenure of previous CCP leaders, they would have been nervous.
But Xi Jinping’s focus is not here. In recent years, he has made it clear that he is not interested in pursuing economic growth at all costs. What he wants is “high-quality development.” Although this is a vague concept, economists and consultants believe that this concept includes a greater emphasis on national security, political stability and social equality.
While he increasingly values ideological purity, Xi Jinping cares less about what the market thinks, as evidenced by the government’s sudden announcement on Monday that it was canceling Prime Minister Li Qiang’s annual press conference.
To advance these goals, Xi Jinping is willing to accept slower economic growth, believing that these new priorities will help strengthen the CCP’s control, enhance China’s ability to confront Western powers, and restore China’s due international status.
However, transitioning from high to low growth is a thorny challenge for any government. Achieving this goal will be even more difficult amid heightened geopolitical threats and rising domestic discontent.
The risk is that Xi Jinping could go too far and plunge the Chinese economy into secular stagnation, as happened in Japan in the 1990s, and create more discontent in the process.
In recent months, signs of China’s leadership’s changing priorities have emerged in more places, including in Xi Jinping’s speeches, raids on foreign-owned companies and public calls by China’s national security authorities for people to be more vigilant about foreign threats.
In a speech last year, Xi Jinping said, “Security is the foundation of development, and stability is the prerequisite for strength.”
The change in the CCP’s focus is also reflected in some things that it has not done. The most obvious is the delay in introducing large-scale stimulus policies, such as large-scale government infrastructure investment. In the past, these measures have injected a boost into the economy during economic slowdowns. Now, although economists and investors have recently called on the Chinese government to take more measures to stimulate economic growth, Xi Jinping has made it clear that flooding the economy with measures is wasteful and short-term.
China’s per capita GDP is currently closer to Mexico or Thailand. If the growth rate is lower than that of mature developed economies, China will be locked in the position of a middle-income country, which will have an uncertain impact on the CCP’s domestic affairs, international relations and the global economy.
During the decades under the three leaders before Xi Jinping, China’s development model was simple and clear, still putting growth first. This generally accepted model that had lasted for decades came to an end in October 2017, when Xi Jinping used the National Congress of the Communist Party of China to pave the way for the abolition of presidential term limits and herald the arrival of a “new era” in which economic growth has ceased. Then there is the issue that the CCP leadership is most concerned about.
In 2021, Xi Jinping sought to restrict the private sector and rectify for-profit tutoring companies, consumer Internet platforms and real estate developers. The moves have battered the economy and alarmed foreign investors, but they don’t seem to faze Xi Jinping and other senior officials, who have done little to ease the pressure, even as experts call for some measures to be rolled back.
Since then, it has become increasingly clear that these moves are part of Xi’s administration’s long-term strategy to reassert the authority of the Communist Party and its ideological priorities; reduce excessive risk-taking behavior; and strengthen the economy’s resilience to potential shocks. , the most important thing is to defuse the real estate bubble that many policymakers regard as a ticking time bomb.
Outside economists and academics say many of Xi’s goals will not be easy to achieve given the many headwinds China faces, including a huge debt burden, unfavorable demographics and growing tensions with Western trading partners.
Xi Jinping’s plan also leaves many grassroots officials in the CCP wondering how to proceed because the goals appear vaguer and less attractive. That could exacerbate policy paralysis, discouraging risk-averse local officials from finding creative solutions to China’s economic problems, while exacerbating the pain that accompanies a slowdown.
Gabriel Wildau, managing director of Teneo, a consulting firm with offices in New York and Shanghai, said, “The problem facing Xi Jinping and the Communist Party leadership is that their goals are not compelling enough in nature or answer the questions of lower-level officials. “It’s no longer clear where China is going or what its overall goals are.”
But even if Xi Jinping is feeling anxious, he doesn’t show it. “Some elites who benefited from the old growth-first model are dissatisfied, but he doesn’t care; they can now suffer a little while the country goes through a painful transformation,” Wildau said.
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2024-03-05 18:25:58
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