Decoding China’s economy — Part I

There is much about China’s economic conditions that can be gleaned from the government work report, both from what it says and what it left unsaid.

China has been facing economic headwinds for some time now. Its domestic problems are long-standing — high local government debt, low consumption, and overcapacity in several industries, among others. This is the broad context against which Chinese Premier Li Qiang presented his first government work report at the just concluded annual session of the National People’s Congress in Beijing.

There is much about China’s economic conditions that can be gleaned from the report, both from what it says and what it left unsaid. For instance, Li states that, “The latest round of institutional reform at the central government level was generally completed, and such reform at the local government level proceeded in a well-planned way.” The way to understand this banal statement is to infer that there is both resistance to reforms as well as practical difficulties in implementing them, related to the fact that ‘reform’ here is less about improving economic efficiency and more about establishing better political control by the ruling Communist Party of China (CPC) over institutions and localities.

Similarly, his reference later in the report, to the need to “strengthen coordination between policy instruments while developing new ones” suggests both that co-ordination is running into rough weather and that the government is facing difficulties coming up with appropriate and effective policies. 

The principal contradiction

At the 19th Party Congress in 2017, CPC General Secretary Xi Jinping termed the “principal contradiction” as one “between unbalanced and inadequate development and the people’s ever-growing needs for a better life”. It is not surprising then that Li references this concern early in his report when he declares that “Per capita disposable income of residents increased by 6.1 percent, and the income gap between urban and rural residents continued to narrow.” The gap remains a significant problem, but, given that “the share of permanent urban residents in the total population rose to 66.2 per cent” — a long-term trend — it also suggests that over time it is general income growth rather than the rural-urban divide that will become the bigger concern.

Other issues Li must confront publicly include that of “pressure on overall job creation and structural employment problems” — over 11.7 million students are graduating from college this year according to his figures. The Chinese premier also acknowledges that the problem of falling birth rates in the country is due to “costs of giving birth and raising and educating children”, and outlines policies for “refining” parental leave, and “improving the mechanism for sharing the related labor costs of employers, and increasing the supply of childcare services”.

Elsewhere, however, Li converts a necessity into a virtue when he says that the government “refrained from resorting to a deluge of stimulus policies or strong short-term stimulus measures” — precisely the sort of policies that successive Chinese leaderships have adopted to tide over past crises, and which have led to moral hazard, overcapacity, and other structural problems in the Chinese economy. There are several references to the need for “a proactive fiscal policy and a prudent monetary policy”, and a call to “tighten up financial and economic discipline and intensify oversight on accounting” as well as to avoid “prestige and vanity projects and wasteful and excessive spending”. Clearly, a decade of the anti-corruption campaign has not solved all problems.

‘High-quality development’

Naturally, there are several obligatory references to the panacea that Xi has been touting for some time now of “high-quality development”. Some details were available in the work report.

Referring to “high-quality development of key industrial chains”, which he says resulted in arresting the decline and growth of the profits of industrial enterprises, Li outlines some broad elements of this policy — the implementation of major science and technology programmes, advancing “new industrialization”, “measures to ensure the stable performance of the industrial sector”, support for “advanced manufacturing”, and increased tax deductions for R&D expenses of enterprises in key industries.

Elsewhere, Li also refers to improving the “mix” of foreign trade noting “a 30-percent increase in exports of the ‘new trio’ – electric vehicles, lithium-ion batteries, and photovoltaic products.” Other aspects include, higher-education reform, reform of State-owned enterprises, and “worry free consumption”, which involves protecting consumer rights and interests, implementing paid leave, and upgrading standards and quality of goods and services.

To “overhaul or abolish policies and regulations that hinder high-quality development” is, however, easier said than done. There is a new Private Economy Promotion Law in the works but the need for legislation to “raise the confidence and expectations of private enterprises and stimulate their greater development potential”, is an indicator of the difficult conditions faced by private enterprises in the past decade under Xi’s rule.

A delegate to the Chinese People’s Political Consultative Conference — an advisory body that also meets at the same time as the National People’s Congress — pointed out, “Innovation and investment activities among China’s leading digital enterprises are decreasing, with a sharp decline in the number of new unicorn companies”. 

Conclusion

Chinese politicians, like their counterparts elsewhere, do not like to waste a good crisis. Li, thus, uses references to his country’s myriad economic challenges as an opportunity to also highlight such things as “the concerted efforts of the entire nation” due to which the government “accomplished the year’s development goals and embraced positive changes on many fronts”.

It is also an opportunity for him to underscore “the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core” that allows the Chinese people to have “the courage, vision, and strength to meet any challenge and overcome any obstacle”.

Chinese official documents even when they discuss economic issues are, therefore, also exercises in political signalling and propaganda, and must be read accordingly.

(This is the first in a two-part series on the ‘Report on the work of the government’ presented at the 14th National People’s Congress in Beijing, China, on March 5.)

(Jabin T Jacob is Associate Professor, Department of International Relations and Governance Studies, and Director, Centre for Himalayan Studies, Shiv Nadar Institution of Eminence, Delhi-NCR. X: @jabinjacobt)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.