Premier Li Keqiang has warned the National People's Congress that China may be in for stormy weather, saying the economic situation is unpredictable. So, that means tax cuts and higher debt, DW's Frank Sieren writes.
The 2018 National People's Congress is focused heavily on the unstable international economic situation. The government has announced its intent to lower China's growth target and introduced tax cuts and a lower debt-to-GDP ratio. More social support for younger people and seniors was announced, as were measures to shore up the private economy and better conditions for foreign investors. These are some of the most important measures. The government has soberly analyzed the risks — just like an international company's board might do.
In his opening speech (pictured), Premier Li Keqiang announced China's lowered growth target for the year. At 6-6.5 percent, the number remains high but it's the lowest in three decades. Many companies and municipalities have debts. Domestic consumption is down. The labor market is stagnating. China's middle class is worried about disproportionately high rents and the lack of social security, especially for pensioners. Moreover, there is little tail wind from the global economy. "We will face a graver and more complicated environment, as well as risks and challenges in pursuing development this year," Li said.
"Downward pressure on the Chinese economy continues to increase, growth in consumption is slowing, and growth in effective investment lacks momentum," Li added. "The real economy faces many difficulties."
'Forestall and control'
The government faces two challenges: On the one hand, it has to persuade citizens that their standards of living are not at risk, and on the other it has to keep debt under control. New infrastructure no longer suffices. Now, medium-sized enterprises need to be strengthened. One way of doing this is to cut taxes by the equivalent of €260 billion ($290 billion).
"Against the backdrop of mounting downward pressure on the economy, the policies and measures we adopt should ensure stable expectations, stable growth and structural adjustments," Li said. "In working to forestall and control risks, we need to get the pace and intensity right."
Li said China would continue to promote the all-around opening up of its domestic market and create better conditions for foreign companies and investment. "We will strengthen efforts to protect foreign investors' legitimate rights and interests," he said. Technology transfer will no longer be compulsory, and the authorities will be less hands-on. Li said Chinese and foreign companies should be treated equally in a fair market. This is not the first time that he has made such comments, but now there is more pressure to implement these ideas. China's economy has not been under such pressure for a long time. The trade dispute with the United States and the boycott of Huawei technology are only two indicators of the profound international distrust.
Military spending will increase 7.5 percent, which is down from last year's 8.1 percent boost. In absolute terms, the US's military budget is four times that of China. Nonetheless, nations on the South China Sea remain alert. The cult of personality surrounding President Xi Jinping has not helped to increase trust. The Communist Party's influence has expanded in all sectors of society since Xi took office and his "Thought on Socialism with Chinese Characteristics for a New Era" was incorporated into the constitution in 2018.
What's certain is that this year, the 70th anniversary of the founding of the People's Republic of China, the population's satisfaction and the economy's stability are top of the agenda. That means higher debt.