China ’s Two Sessions – the National People’s Congress ( NPC ) and the National Committee of the Chinese People’s Political Consultative Conference ( CPPCC ) – took place from March 4-11 in Beijing.
The Two Lessons have been especially crucial for understanding where the Taiwanese economy is headed this season, with new Premier Li Qiang delivering his first “Work Report, ” which marked the start of a new economic time.
The Job Report places more emphasis on the supply side of the economy than the demand side, which represents a departure from the previous ten years under Premier Li Keqiang’s leadership. The focus on “new productive forces ” points to Chinese leaders ’ new understanding of the country ’s economic transition.
According to the Work Report, China plans to increase its focus on basic and advanced manufacturing, but demand-focused stimulus measures do n’t seem to be as effective.
International investors had anticipated that China would appoint financial and/or fiscal stimulus to help its sluggish local economy. But they are now confronted with the state ’s further push towards becoming the manufacturer of the world – and, this time around, for any kind of solution, including the most advanced.
Investor sorrow was felt shortly after the Work Report was released, leading to a 2 % decline in the Hang Seng Index, which is China’s most important offshore indicator of international attitude.
Depending on the quantity of Chinese goods that the rest of the world will accept, did the focus on manufacturing production rather than consumption succeed?
China will increase its power by investing more in production, which will add to its already existing overcapacity, as can be seen from the persistent and pervasive negative pressure in China’s inland sectors, where producer prices have been stagnating for nearly two years.
Even with falling export prices, China has n’t been able to raise exports until recently, which raises a serious question about whether or not China will willingly take up its additional manufacturing capacity.
China will only be able to sell the goods produced by these “new creative makes ” thanks to the interventionist causes that are being unveiled around the world, starting with the US, which is expanding rapidly. ”
Thus, Li’s desire that new creative forces will solve China’s growing pains on the one hand and growing protectionism on the other hand seem to contradict itself.
Given how much emphasis President Xi has placed on the quality of growth, Chinese policymakers are unwilling to venture into the unfamiliar territory of “high-quality monetary development” and abandon the nation’s traditional growth goals.
The focus on quality is largely dependent on Chinese policymakers ‘ determination to abandon the real estate industry as their primary source of growth and shift to more advanced manufacturing. However, sticking to the original GDP growth target of 5 % as it was last year indicates a lack of confidence in changing from the older model.
Second acknowledging that China can no longer reach the same GDP growth as last year and then making an economic plan adjustment in response would have been a far bolder move.
Moving from a genuine estate-based type to one that requires less investment and more consumption implies that some costs will have to be borne in terms of financial deceleration. China does not require more investment in a related field ( like manufacturing ), as this will only aggravate the rebalancing of the economy.
Due to cyclical and structural winds, achieving the great 5 % destination will also be challenging. But, Li’s pressure to maintain and meet a high rise target is still present, even with the simultaneous goal of achieving more high-quality growth.
For pressure to expand above possible, largely by doubling down on sophisticated developing, is bound to produce more tensions with China ’s major trading partners. China ’s 5 % growth target in 2024 will thus be harder to achieve than it was last year.
If achieved, it will be thanks to the rest of the world freely absorbing China ’s excess capacity, but this is by no means certain.
Even if it does occur, China’s increased focus on manufacturing will just add capacity to the country’s overall economy in 2025, potentially making this growth model as unsustainable as the real estate-led one, for various reasons.