Premier Li Qiang opened the National People’s Congress with his work report, as always, with many details. What is particularly striking is Li’s focus on continuity. The deficit, inflation, unemployment rate, and – most importantly – economic growth targets are practically the same as a year ago, writes Joern Petring. As expected, the NPC is not planning any significant economic stimulus packages.
The growth target of “around five percent” sent share prices plummeting on Tuesday. However, this figure is not without ambition, explains Finn Mayer-Kuckuk. As China’s economy is already a bit larger than that of the EU, a growth rate of five percent means an enormous amount of goods and services. Consumption is the key here; the government cannot risk another loan-financed construction or investment boom. This, in turn, is good news for companies that produce for China’s consumer market.
The military budget is once again set to grow faster than the economy. The People’s Liberation Army will receive an extra 7.2 percent this year. This raises concerns in the region, which is already feeling the pressure from its large and increasingly powerful neighbor, as Michael Radunski analyzes. And: Premier Li has once again sharpened his rhetoric towards Taiwan at the People’s Congress.
Despite an ambitious growth target of “around five percent” and aid promises for the struggling real estate sector, the annual government report at the start of the People’s Congress in Beijing failed to lift the mood in China’s economy. The markets’ initial reaction to the government plans for this year presented by Premier Li Qiang on Tuesday was sobering. While the Shanghai Composite Index made a slight gain by the close of trading, there was a veritable sell-off in Hong Kong, where the Hang Seng Index lost 2.6 percent.
Investors clearly gave the thumbs down. As expected, the Premier did not have a comprehensive economic stimulus package up his sleeve. Instead, Li clarified that Beijing will essentially maintain its current course: Money will no longer simply be handed out but will flow into future industries and new technologies.
“There were no surprises in today’s speech, but there were also no meaningful solutions,” said renowned Beijing economist Michael Pettis, summarizing his impressions of the opening. The “keep it up” approach is also evident in Li’s key figures on Tuesday. Many have remained almost identical to last year.
Premier Li apparently shares this view: “Achieving this year’s targets will not be easy,” he admitted to the 2,872 delegates in the Great Hall of the People. “It requires focused policies, redoubled efforts, and concerted efforts from all parties.” Li made it clear that the restructuring of the economy must continue. “We should stick to the principles of progress and stability,” said the Premier. New things must be created before old things are abolished.
Li presented plans to increase the national budget for science and technology research by a whopping ten percent compared to the previous year. The Development and Reform Commission’s plan, which was also presented on Tuesday, also showed that Beijing intends to keep up the pace in promoting new economic sectors. The overarching goal for 2024 is to “use scientific and technological innovation to lead the modernization of its industrial system.”
“We will work extensively to increase the autonomy and strength of science and technology and improve the basic system for comprehensive innovation,” it continues. The Chinese government “will vigorously advance new industrialization.” Beijing also wants to achieve “more breakthroughs in core technologies” and tap into “new growth drivers.”
Stimulating consumption was only mentioned second. At least the battered property owners received a somewhat positive signal. For the first time in years, the formula coined by state and party leader Xi Jinping, “houses are for living, not for speculation,” was no longer mentioned.
Although there is no sign of a departure from the strict policy on highly indebted real estate developers, the leadership’s plans emphasize keeping an eye on the problem. For instance, local governments are to exercise their “regulatory responsibility to ensure that houses that have already been sold are handed over on time.” Efforts are also to be made to meet the “appropriate financing needs” of real estate companies.
Economists consider China’s target of around five percent growth for 2024 ambitious but achievable. “It should not be seen as a forecast, but as a signal figure,” Doris Fischer, Professor of China Business and Economics at the University of Würzburg, told Table.Briefings. Premier Li Qiang wants to convey to the public that the government is trying to get the problems under control. According to Fischer, he aims to restore confidence in the economy and economic policy.
However, Fischer also believes that the economy will continue to drift apart. While things are going well in some sectors, the high unemployment rate is a particular cause for concern. “What I hear from China is that the mood is bad – especially among young academics.” She thinks Premier Li’s speech “will not be the starting signal for a new positive mood.”
This makes an active job market policy all the more urgent. However, the government does not seem entirely confident in its own means. It has set an unemployment rate target of 5.5 percent, whereas last year’s figure was 5.1 percent, according to the statistics bureau. Here, Fischer recognizes an admission that unemployment could rise despite the creation of new jobs.
Economists believe that significantly more positive signals are needed for a return to optimism among consumers and companies. “They are uncertain about the future,” says Horst Loechel, economist and Co-Chairman of the Sino-German Center at the Frankfurt School of Finance & Management. “And not just because growth has been so low, but also because of the regulation of internet companies in recent years, for example.”
However, in the overall picture, Premier Li has no choice but to stimulate consumption. After all, private consumption is the key to keeping growth in line with the planned targets: The government cannot risk another debt-fuelled construction or investment boom. “The debt-driven growth model is dead,” saidLoechel.
The prospect of a recovery in spending is, in turn, good news for German industry. “If consumption is revitalized, China will remain an interesting market thanks to its size,” said Fischer.
This is why the German economy wants to keep its share of what continues to be an important market, said Fischer. This applies to the automotive industry, its suppliers, and all other sectors that benefit directly and indirectly from consumer spending.
Li went to great lengths on Tuesday to give positive signals to the private sector and allay the fears of international corporations. He conceded that “state-owned enterprises, private businesses and foreign-funded companies all play an important role” in China’s modernization efforts. “This kind of thing goes down well in the industry,” observed Loechel, adding that China remains a crucial market for international strategies. Despite the property and debt crisis, it will become increasingly important for now.
Economist Fischer regards restoring confidence in the future and reducing the savings ratio as the most important means of stimulating consumption. During the COVID-19 pandemic, Chinese citizens have again started saving more money for a rainy day.
Only when they feel safer again can more dynamism emerge. One way of achieving this would be a more social policy that allays people’s fears of old-age poverty, hospital costs, and the like.
According to Fischer’s observations, however, President Xi Jinping is torn between the realization that inequality is detrimental to cohesion and an aversion to the European-style welfare state, which he believes encourages laziness. Fischer’s impression: The social and tax system ultimately contributes to maintaining inequality.
This is another area that could be addressed. After all, allowing the average population to have higher incomes would be another way of boosting consumption – at the expense of competitiveness. Xi and his government have been trying to “square the circle” here for years, creating progress without bringing about changes that could jeopardize his power.
The NPC report highlights several sectors that are likely to benefit significantly from the subsidy policy in the coming years:
German companies can certainly hope for additional contracts in some of these sectors or benefit from cost-effective procurement in China. Sanctions could make this more difficult for semiconductors, but Loechel sees particularly promising partnership opportunities in the energy supply sector.
China’s defense spending is set to increase by 7.2 percent this year. This is according to the Chinese Ministry of Finance’s budget plan presented to the National People’s Congress on Tuesday. Military spending is expected to rise to 1.67 trillion yuan (around 231 billion US dollars/214 billion euros). The internal comparison is also important: At 7.2 percent, this figure is significantly higher than the targeted economic growth of “around five percent.”
It is an alarming development. Pressure on Taiwan is increasing, disputes in the East and South China Seas are intensifying, and relations between China and the US are also strained. “China’s military is clearly focused on its immediate territorial targets. These are areas in the East and South China Seas, but above all Taiwan,” Dan Smith from the renowned Stockholm International Peace Research Institute (Sipri) told Table.Briefings.
Above all, pressure is mounting on Taiwan. On Tuesday, Premier Li also tightened the official wording regarding the democratically governed island before the People’s Congress. He refrained from the previously typical formulation of “peaceful reunification.” Instead, Li said the government was “firm in advancing the cause of China’s reunification, and uphold the fundamental interests of the Chinese nation.”
Although officials have occasionally omitted the adjective “peaceful” in this context in the past, but in light of the current tensions and such an important event as the National People’s Congress, it can be assumed that the leaders in Beijing also wanted to verbally increase the threat potential towards Taiwan this Tuesday.
Li also indirectly warned the United States: He called on the delegates to resolutely oppose “Taiwan independence separatist forces and the interference by external forces.”
Many observers are particularly concerned about the steadily rising military budget. “China is the only country that has increased its military spending every year for the past 28 years,” says Sipri head Smith. Over the past three decades, China’s military spending has risen by at least 6.6 percent annually – most recently by more than 7 percent, despite a continuous economic slowdown.
Analysts also note that the actual figure is likely to be far higher, as research and development spending, among other things, is not taken into account.
In any case, China’s defense spending has long been a core component of the national budget. It accounts for around 40 percent of the central government’s expected total spending. Beijing spends ten times as much on the military as on education. Accordingly, the Ministry of Finance declared that defense spending would be given priority while other expenditures would be strictly cut back. Premier Li emphasized: “We in governments at all levels will provide strong support to the development of national defense and the armed forces.”
However, China’s military spending reveals a much more balanced picture compared to other countries. Tuesday’s announcement of an increase in the defense budget means that China’s military budget only accounts for around 1.2 to 1.6 percent of GDP. Thus, the People’s Republic remains well below the 2 percent annual target of NATO members.
Sipri head Smith points to a global trend. “Overall, we are talking about a world where more money is spent on the military than ever. The global military build-up amounted to more than 2,200 trillion US dollars last year alone.” The USA remains the undisputed leader here, with 877 trillion US dollars in 2022, followed by China with 292 trillion US dollars.
But Taiwan, like China’s neighbors Japan, South Korea, Australia and the Philippines, international comparisons will hardly reassure Taiwan. They are well aware of the plans Xi Jinping has for China’s military.
China’s head of state has set the goal of turning the Chinese military into a “modern fighting force” by 2027. The increase in the military budget is in line with the “full implementation of Xi Jinping’s thoughts on strengthening the military,” the draft budget states.
Moreover, China’s neighbors already feel the enormous pressure potential of the Chinese armed forces in various forms. China boasts the largest navy in the world – measured by the number of ships. Along with the United States and Russia, the People’s Republic is the only country to produce fifth-generation fighter jets. And the USA warned last week that China is growing its military capabilities in space at a “breathtaking pace.”
China’s Premier Li also left no room for doubt on Tuesday. The leadership in Beijing is determined to make the Chinese military combat-ready. The armed forces “will strengthen all-around military training and combat readiness, make well-coordinated efforts to improve military preparedness … so as to firmly safeguard China’s national sovereignty, security, and development interests.”
Sinolytics is a research-based business consultancy entirely focused on China. It advises European companies on their strategic orientation and specific business activities in the People’s Republic.
Taylor Swift is arguably the most popular pop singer of our time – including in China. The fact that their idol is giving six exclusive Southeast Asian concerts in relatively close Singapore between now and 9 March is causing a sensation among “Swifties”- as the singer’s fans call themselves. The city-state only recently suspended visa requirements for Chinese tourists. However, Chinese traveling from the mainland will have to dig deep into their pockets for flights, hotels and the 300 euro concert tickets. Meanwhile, a canceled Singapore Airlines (SIA) flight caused panic. Fans explained that the offered alternative flights would not get them to the concerts on time.
Premier Li Qiang opened the National People’s Congress with his work report, as always, with many details. What is particularly striking is Li’s focus on continuity. The deficit, inflation, unemployment rate, and – most importantly – economic growth targets are practically the same as a year ago, writes Joern Petring. As expected, the NPC is not planning any significant economic stimulus packages.
The growth target of “around five percent” sent share prices plummeting on Tuesday. However, this figure is not without ambition, explains Finn Mayer-Kuckuk. As China’s economy is already a bit larger than that of the EU, a growth rate of five percent means an enormous amount of goods and services. Consumption is the key here; the government cannot risk another loan-financed construction or investment boom. This, in turn, is good news for companies that produce for China’s consumer market.
The military budget is once again set to grow faster than the economy. The People’s Liberation Army will receive an extra 7.2 percent this year. This raises concerns in the region, which is already feeling the pressure from its large and increasingly powerful neighbor, as Michael Radunski analyzes. And: Premier Li has once again sharpened his rhetoric towards Taiwan at the People’s Congress.
Despite an ambitious growth target of “around five percent” and aid promises for the struggling real estate sector, the annual government report at the start of the People’s Congress in Beijing failed to lift the mood in China’s economy. The markets’ initial reaction to the government plans for this year presented by Premier Li Qiang on Tuesday was sobering. While the Shanghai Composite Index made a slight gain by the close of trading, there was a veritable sell-off in Hong Kong, where the Hang Seng Index lost 2.6 percent.
Investors clearly gave the thumbs down. As expected, the Premier did not have a comprehensive economic stimulus package up his sleeve. Instead, Li clarified that Beijing will essentially maintain its current course: Money will no longer simply be handed out but will flow into future industries and new technologies.
“There were no surprises in today’s speech, but there were also no meaningful solutions,” said renowned Beijing economist Michael Pettis, summarizing his impressions of the opening. The “keep it up” approach is also evident in Li’s key figures on Tuesday. Many have remained almost identical to last year.
Premier Li apparently shares this view: “Achieving this year’s targets will not be easy,” he admitted to the 2,872 delegates in the Great Hall of the People. “It requires focused policies, redoubled efforts, and concerted efforts from all parties.” Li made it clear that the restructuring of the economy must continue. “We should stick to the principles of progress and stability,” said the Premier. New things must be created before old things are abolished.
Li presented plans to increase the national budget for science and technology research by a whopping ten percent compared to the previous year. The Development and Reform Commission’s plan, which was also presented on Tuesday, also showed that Beijing intends to keep up the pace in promoting new economic sectors. The overarching goal for 2024 is to “use scientific and technological innovation to lead the modernization of its industrial system.”
“We will work extensively to increase the autonomy and strength of science and technology and improve the basic system for comprehensive innovation,” it continues. The Chinese government “will vigorously advance new industrialization.” Beijing also wants to achieve “more breakthroughs in core technologies” and tap into “new growth drivers.”
Stimulating consumption was only mentioned second. At least the battered property owners received a somewhat positive signal. For the first time in years, the formula coined by state and party leader Xi Jinping, “houses are for living, not for speculation,” was no longer mentioned.
Although there is no sign of a departure from the strict policy on highly indebted real estate developers, the leadership’s plans emphasize keeping an eye on the problem. For instance, local governments are to exercise their “regulatory responsibility to ensure that houses that have already been sold are handed over on time.” Efforts are also to be made to meet the “appropriate financing needs” of real estate companies.
Economists consider China’s target of around five percent growth for 2024 ambitious but achievable. “It should not be seen as a forecast, but as a signal figure,” Doris Fischer, Professor of China Business and Economics at the University of Würzburg, told Table.Briefings. Premier Li Qiang wants to convey to the public that the government is trying to get the problems under control. According to Fischer, he aims to restore confidence in the economy and economic policy.
However, Fischer also believes that the economy will continue to drift apart. While things are going well in some sectors, the high unemployment rate is a particular cause for concern. “What I hear from China is that the mood is bad – especially among young academics.” She thinks Premier Li’s speech “will not be the starting signal for a new positive mood.”
This makes an active job market policy all the more urgent. However, the government does not seem entirely confident in its own means. It has set an unemployment rate target of 5.5 percent, whereas last year’s figure was 5.1 percent, according to the statistics bureau. Here, Fischer recognizes an admission that unemployment could rise despite the creation of new jobs.
Economists believe that significantly more positive signals are needed for a return to optimism among consumers and companies. “They are uncertain about the future,” says Horst Loechel, economist and Co-Chairman of the Sino-German Center at the Frankfurt School of Finance & Management. “And not just because growth has been so low, but also because of the regulation of internet companies in recent years, for example.”
However, in the overall picture, Premier Li has no choice but to stimulate consumption. After all, private consumption is the key to keeping growth in line with the planned targets: The government cannot risk another debt-fuelled construction or investment boom. “The debt-driven growth model is dead,” saidLoechel.
The prospect of a recovery in spending is, in turn, good news for German industry. “If consumption is revitalized, China will remain an interesting market thanks to its size,” said Fischer.
This is why the German economy wants to keep its share of what continues to be an important market, said Fischer. This applies to the automotive industry, its suppliers, and all other sectors that benefit directly and indirectly from consumer spending.
Li went to great lengths on Tuesday to give positive signals to the private sector and allay the fears of international corporations. He conceded that “state-owned enterprises, private businesses and foreign-funded companies all play an important role” in China’s modernization efforts. “This kind of thing goes down well in the industry,” observed Loechel, adding that China remains a crucial market for international strategies. Despite the property and debt crisis, it will become increasingly important for now.
Economist Fischer regards restoring confidence in the future and reducing the savings ratio as the most important means of stimulating consumption. During the COVID-19 pandemic, Chinese citizens have again started saving more money for a rainy day.
Only when they feel safer again can more dynamism emerge. One way of achieving this would be a more social policy that allays people’s fears of old-age poverty, hospital costs, and the like.
According to Fischer’s observations, however, President Xi Jinping is torn between the realization that inequality is detrimental to cohesion and an aversion to the European-style welfare state, which he believes encourages laziness. Fischer’s impression: The social and tax system ultimately contributes to maintaining inequality.
This is another area that could be addressed. After all, allowing the average population to have higher incomes would be another way of boosting consumption – at the expense of competitiveness. Xi and his government have been trying to “square the circle” here for years, creating progress without bringing about changes that could jeopardize his power.
The NPC report highlights several sectors that are likely to benefit significantly from the subsidy policy in the coming years:
German companies can certainly hope for additional contracts in some of these sectors or benefit from cost-effective procurement in China. Sanctions could make this more difficult for semiconductors, but Loechel sees particularly promising partnership opportunities in the energy supply sector.
China’s defense spending is set to increase by 7.2 percent this year. This is according to the Chinese Ministry of Finance’s budget plan presented to the National People’s Congress on Tuesday. Military spending is expected to rise to 1.67 trillion yuan (around 231 billion US dollars/214 billion euros). The internal comparison is also important: At 7.2 percent, this figure is significantly higher than the targeted economic growth of “around five percent.”
It is an alarming development. Pressure on Taiwan is increasing, disputes in the East and South China Seas are intensifying, and relations between China and the US are also strained. “China’s military is clearly focused on its immediate territorial targets. These are areas in the East and South China Seas, but above all Taiwan,” Dan Smith from the renowned Stockholm International Peace Research Institute (Sipri) told Table.Briefings.
Above all, pressure is mounting on Taiwan. On Tuesday, Premier Li also tightened the official wording regarding the democratically governed island before the People’s Congress. He refrained from the previously typical formulation of “peaceful reunification.” Instead, Li said the government was “firm in advancing the cause of China’s reunification, and uphold the fundamental interests of the Chinese nation.”
Although officials have occasionally omitted the adjective “peaceful” in this context in the past, but in light of the current tensions and such an important event as the National People’s Congress, it can be assumed that the leaders in Beijing also wanted to verbally increase the threat potential towards Taiwan this Tuesday.
Li also indirectly warned the United States: He called on the delegates to resolutely oppose “Taiwan independence separatist forces and the interference by external forces.”
Many observers are particularly concerned about the steadily rising military budget. “China is the only country that has increased its military spending every year for the past 28 years,” says Sipri head Smith. Over the past three decades, China’s military spending has risen by at least 6.6 percent annually – most recently by more than 7 percent, despite a continuous economic slowdown.
Analysts also note that the actual figure is likely to be far higher, as research and development spending, among other things, is not taken into account.
In any case, China’s defense spending has long been a core component of the national budget. It accounts for around 40 percent of the central government’s expected total spending. Beijing spends ten times as much on the military as on education. Accordingly, the Ministry of Finance declared that defense spending would be given priority while other expenditures would be strictly cut back. Premier Li emphasized: “We in governments at all levels will provide strong support to the development of national defense and the armed forces.”
However, China’s military spending reveals a much more balanced picture compared to other countries. Tuesday’s announcement of an increase in the defense budget means that China’s military budget only accounts for around 1.2 to 1.6 percent of GDP. Thus, the People’s Republic remains well below the 2 percent annual target of NATO members.
Sipri head Smith points to a global trend. “Overall, we are talking about a world where more money is spent on the military than ever. The global military build-up amounted to more than 2,200 trillion US dollars last year alone.” The USA remains the undisputed leader here, with 877 trillion US dollars in 2022, followed by China with 292 trillion US dollars.
But Taiwan, like China’s neighbors Japan, South Korea, Australia and the Philippines, international comparisons will hardly reassure Taiwan. They are well aware of the plans Xi Jinping has for China’s military.
China’s head of state has set the goal of turning the Chinese military into a “modern fighting force” by 2027. The increase in the military budget is in line with the “full implementation of Xi Jinping’s thoughts on strengthening the military,” the draft budget states.
Moreover, China’s neighbors already feel the enormous pressure potential of the Chinese armed forces in various forms. China boasts the largest navy in the world – measured by the number of ships. Along with the United States and Russia, the People’s Republic is the only country to produce fifth-generation fighter jets. And the USA warned last week that China is growing its military capabilities in space at a “breathtaking pace.”
China’s Premier Li also left no room for doubt on Tuesday. The leadership in Beijing is determined to make the Chinese military combat-ready. The armed forces “will strengthen all-around military training and combat readiness, make well-coordinated efforts to improve military preparedness … so as to firmly safeguard China’s national sovereignty, security, and development interests.”
Sinolytics is a research-based business consultancy entirely focused on China. It advises European companies on their strategic orientation and specific business activities in the People’s Republic.
Taylor Swift is arguably the most popular pop singer of our time – including in China. The fact that their idol is giving six exclusive Southeast Asian concerts in relatively close Singapore between now and 9 March is causing a sensation among “Swifties”- as the singer’s fans call themselves. The city-state only recently suspended visa requirements for Chinese tourists. However, Chinese traveling from the mainland will have to dig deep into their pockets for flights, hotels and the 300 euro concert tickets. Meanwhile, a canceled Singapore Airlines (SIA) flight caused panic. Fans explained that the offered alternative flights would not get them to the concerts on time.
