Economy

A chorus from the capital

What were the policy signals from the Two Sessions meetings?

Li-Keqiang-w

Li Keqiang orates at the NPC

The Chinese government is no fan of hip-hop culture (see WiC393) although that didn’t stop it from putting together a five-minute rap to coincide with this week’s Two Sessions, the term used to describe the country’s annual parliamentary meetings.

The ode – produced by Xinhua – was even in English, although the state news agency evidently has not learned that propaganda efforts like these translate terribly in the West.

This one was no exception. “See we’ve got ‘Two Sessions,’ let me show you Chinese manners. Tramp the bygone session we’re the fortitude presence,” the lyrics explained unhelpfully, before getting even more surreal with references to Popeye and kidney stones.

So much for China’s skills in soft power, you might think. But rapping aside, what messages has Beijing being broadcasting from the Two Sessions?

This year much of the attention has focused on what was missing from the State Council’s Work Report, which sets out the key goals for the year ahead.

The term ‘Made in China 2025’ popped up repeatedly in previous efforts but this time around Chinese Premier Li Keqiang did not mention the efforts to turn the country into a tech powerhouse even once.

Huang Shouhong, who works for a State Council think tank that helped to draft Li’s speech, explained to reporters that there was simply “not enough space” in the 27,000 word document.

Chinese officials and state media have actually been avoiding the term for some time as Beijing’s tech ambitions have irked the Americans, sowing some of the seeds for the trade row between the world’s two biggest economies.

The Hong Kong Economic Journal believes the omission of ‘Made in China 2025’ doesn’t mean that Beijing has abandoned the plan, however.

“China is simply returning to Deng Xiaoping’s ‘hide the brightness’ diplomatic strategy. They will just do it, although they won’t be talking about it,” the newspaper predicted.

Hopes are high that Beijing and Washington could be on the verge of reaching a deal to bring their trade war to an end. Yet Li admitted publicly for the first time that the row has taken a toll on the Chinese economy. The government was foreseeing “graver and more complex” challenges, he conceded, as he set the economic growth target in a range of 6% to 6.5%, the lowest for nearly 30 years.

To help absorb some of the trade war’s impact on exporters, Li announced that value-added tax for the manufacturing sector will be cut from 16% to 13%. He added the tax and social insurance burden for companies would also be reduced by Rmb 2 trillion ($297.65 billion) as part of efforts to create more than 11 million new urban jobs this year to keep the unemployment rate under 4.5%.“We will pursue a proactive fiscal policy with greater intensity and enhance its performance,” Li promised.

For many observers these goals look difficult to achieve, particularly if the global economy heads into a broader slowdown.

The State Council has also raised the cap for ‘special-purpose bonds’ (SPB) to Rmb2.15 trillion from Rmb1.35 billion last year. Just like the local government financing vehicles (the LGFVs), these SPBs won’t feature on the balance sheets of local governments. Most are likely to end up on the books of Chinese banks and insurers as the debt is considered sovereign risk, even though it typically offers much higher yields (some 40 basis points).

More debt-fuelled stimulus will worry economists who think China’s debt situation is already a crisis-waiting-to-happen. The central government’s own fiscal deficit target – set at 2.8% of GDP, up from 2.6% last year – looks less alarming, although that doesn’t include the SPBs.


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