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Li Qiang Indicates China's Priorities

China's National People's Congress speech parsed for nuggets of useful information.

The Chinese National People’s Congress (NPC) happened this week. Every year, the photos of ranks of Party officials sat in the Great Hall of the People remind me of my school’s prize giving day, when the Liverpool Philharmonic Hall would be hired and we, in uniform on a Saturday, would have to listen to interminable speeches from the masters, unlistenable music from the school orchestra, and snoring from the parents in the seats at the back. The event often took place on FA Cup Final Saturday as well, so the sound of tinny transistor radios would filter to the front from some of the parents’ enclosures, along with an occasional muffled roar as a goal was scored or missed. Are Chinese party officials as attentive during the NPC? And was anything substantive announced that they or we missed?

One of the main events took place on Tuesday when Premier Li Qiang gave his Work Report at the start of the NPC. This is like the UK budget and the US State of the Union address rolled into one, indicating policy priorities and spending announcements for the year to come. Translations vary slightly but the gist was that the government will focus on efforts to remove development bottlenecks in the economy, especially around finance, productivity and technology.

Premier Li told the gathered thousands of representatives:  “First, striving to modernise industrial systems and develop new, quality productive forces at a faster pace, we should study new faster growth drivers and strengths and promote a new leap forwards in productive forces.”

He added some detail to this bingo sheet of keywords, namely:

·         Work to upgrade industrial supply chains (i.e., productivity improvement measures)

·         Promote development of traditional businesses (I think he means heavy industry here)

·         Carry out technological transformation (invest in IT and AI)

·         Upgrading in the manufacturing sector (invest in automation).

These might be the strategy aims of a large industrial corporation. Of course, China is run like a large industrial corporation so the government has to announce such measures. So far, so uncontentious.

I was more interested to hear Li announce, “We will also promote the development of SMEs that specialise in sophisticated knowledge to produce novel and unique products.” During the rule of Xi Jinping to date, the government has supported SOEs and has let the private sector languish, going so far as to criminalise entire sectors and key individuals. The government has perhaps realised that the pendulum has swung too far and that it needs the innovation which comes from private enterprise if the economy is to be put into a higher gear. Private enterprise creates 80% of urban jobs. Without it, the process of urbanisation stalls, leading to the kind of crisis in property development which currently strangles the Chinese economy.

Lie went on to say, "we will actively foster emerging industries and future oriented industries and consolidate and enhance our leading position in industries such as intelligent, connected, new energy vehicles.”  Some analysts reckon that China has twice as much EV production capacity as it needs to meet domestic demand, so exports will have to grow. Perhaps that’s why Li said in his Work Report, “we will also provide stronger support on quality and standards to create more trans brands with global reach.” A better translation might be “transport brands.”

Li went on to announce that the government "will promote innovative development of the digital economy; will formulate policy to support high quality development of the digital economy, actively develop the digital economy, and transform traditional industry with digital technologies. We will step up R&D and application of big data and AI, launch an AI+ initiative.“  Keep playing the same note and the melody will emerge, eh? The key element here for me is not the repetition of "digital economy" but the future tense in “will formulate policy.”  Nothing to see here, yet.

Perhaps the purpose of all the proposed digital economy measures was exposed when Premier Li reported, “we will support technological and digital transformation to boost the level of social governance.”  I do not think he was referencing ESG here. “Social governance” is a key element of Xi Jinping thought, though it does not seem to have a static meaning. It has historically related to how urbanisation was managed, particularly in megacities. China now has 17 cities of more than 10 million people including Chongqing (pop. 31 Mn), Shanghai (pop. 24 Mn) and Beijing (pop. 22 Mn) with over 20 million people each. Social Management is a catch all term referring to resources, the environment, public safety and cooperation between government, organisations and individuals. Taking a positive perspective, Social Governance can relate to the kind of localised democracy that does exist in China.

But the term Social Governance can also relate to how private sector companies are rated in order to be able to bid for government contracts, how government improves its own functions to achieve higher quality public services, and how civil society can be organised to minimise social conflicts. That last concept is what gives libertarians in the West the chills, as they suppose that digital management could include digital measures of personal and social control such as biometric data storage, access to welfare, employment or housing, and other totalitarian measures. Or it could be about storing trackers on Chinese citizens’ mobile phones or censoring Weibo messages which are critical of the government.

Premier Li’s work report was also interesting for what it did not include. He did not mention unemployment nor offer any job creation policies. Youth unemployment numbers are so poor that the government stopped publishing them last year. About a quarter of 16-25 year olds have no job. No wonder they are not marrying, reproducing, or buying housing, and no wonder that inflation is falling again as retailers slash prices to move inventory.

China's solution to the property crisis was made evident this week and it's an old fashioned statist solution. Provincial and City level governments will issue RMB 3.9 Tn of bonds and use the money to buy up around three thousand unfinished developments, complete them and rent them out (to whom though?). Central government is considering issuing a further RMB 1 Tn of "special bonds" to contribute to completing other projects and kick start urbanisation rates which have fallen from 22 Mn a decade ago to 12 Mn in 2023. If all that debt is issued, China's fiscal deficit will rise to 7% of GDP this year. Fingers crossed that all the digital economy jobs appear to pay the new urbanites, because it is tax payers who will have to contribute to paying the coupon on all those special bonds.

This post is a summary of the macro report in our latest Markets Monthly. Each month this 22 page report covers major developments in macro economics and energy, raw materials and containerised shipping. Sign up for a free sample and suscribe to 12 further copies for just GBP 100 (plus VAT where applicable) here.


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