National People’s Congress 2019: Major Takeaways

The National People’s Congress (NPC) which is regarded the rubber stamp Chinese Parliament started its annual session on March 5, 2019. The meetings are termed as ‘two sessions’ as both the NPC and Chinese People’s Political Consultative Conference (CPPCC) meet and finalize agenda for the coming year. What is interesting is that since Xi Jinping has come to power there are some indicators that the NPC is being given more ‘importance’. Prior to Xi the NPC was not the body which approved any major laws, but things have changed.¹The two sessions are also described as representing the Chinese style of democracy.² This years’ NPC appears to be a solemn affair as the Chinese government acknowledged that the Chinese economy faced a number of challenges in the coming year.

The sense what one gets from Li Keqiang’s speech is that the Chinese economy is struggling. The projected growth rate for the coming year is between 6 and 6.5 percent. No surprise then that the major focus of the leadership has been towards reviving the Chinese economy. Li made it very clear in his speech that China should be ready to “fight challenges of both predictable and unpredictable nature”. Li in his speech sounded motivational when he said, “The difficulties we face must not be underestimated, our confidence must not be weakened, and the energy we bring to our work must not be allowed to wane”.³ Thus it is no surprise that the report proposed a number of tax cuts and changes. During the speech Li used the words " risks”, “pressure” and “challenges” around forty times, underscoring the argument that the China-US trade war has affected the Chinese economy.⁴ Other major challenges are high debt levels and financing challenges for the private sector companies.⁵ Li Keqiang reiterated the government’s commitment to improve the financing for the private companies when he said, “The government will also step up targeted cuts in the reserve requirement ratio to spur lending to private companies”.⁶ Surprisingly there was no mention of ‘Make in China 2025’ in the report.

One of the major announcements was that the Chinese government will work towards helping the foreign investors’ rights. The report said, “China will further relax controls over market access, shorten the negative list for foreign investment, and permit wholly foreign funded enterprises to operate in more sectors”.⁷ It also highlighted that the Chinese government is committed towards safeguarding the intellectual property rights.⁸ Thus it is no surprise that during this NPC the Chinese government also passed the Foreign Investment Law. While discussing the law, vice chairman of the Standing Committee of the NPC Wang Chen, said, “The law is a full testament to China's determination and confidence in opening wider to the outside world and promoting foreign investment in the new era”.⁹ However, the law has failed to completely satisfy the major investors in China, the United States and the European Union. The general perception is that this law will not be effective and is being done to provide some lip service in order to appease the ongoing trade war with the United States.¹⁰

On the defence side, the proposed defence budget is a 7.5 percent increase from last year. Though it is less than the budget proposed last year (8.1 percent) the focus continues to be on modernising the military. The percent increase in the defence budget continues to be higher than the projected growth rates, though less than the last years proposed rise.

Li Keqiang also emphasised that the Chinese government will continue to add to the basic health care facilities. As per the report the Chinese government the medical subsidies will be raised by 30 yuan per person, about half of this will be for serious illness insurance, while the government will “lower and unify the deduction line for serious disease insurance, and raise the reimbursement rate from 50 to 60 percent”. ¹¹ This is also an indication of the rising number of old people and the demographic changes underway in China.

Environmental protection and pollution control also received attention of the Chinese government. Li Keqiang said that there will be renewed efforts to reduce pollution levels and push for green development. The Premier said, “Green development is a critical element in modernizing an economy and a fundamental solution to pollution”.¹² In the last few years environmental degradation and pollution has become a major cause of protests and in China. Thus it is no surprise that the Chinese government is focussing on ways that will help it in controlling pollution and environmental degradation.

Analysing the report it is easy to conclude that the Chinese government is facing major challenges at the economic front. Economic development has become one of the key parameters on which the Chinese government measures its success. If it continues to slow (2018 growth rates are the lowest since 1990) the Party may face major legitimacy challenges. This also makes the task tougher for the leadership as they will have to balance the demands of the changing global economic scenario with the domestic aspirations of the people. It also highlights that China needs to develop a new framework of growth model and also address the concerns of foreign investors. There is a need to balance the demands of domestic growth vis-à-vis the expectations of the other trading and investing partners.

References

1. “'Two sessions': Beijing locked down for China's greatest political spectacle” by Lily Kuo, The Guardian, March 4, 2019 at https://www.theguardian.com/world/2019/mar/04/two-sessions-beijing-locked-down-for-chinas-greatest-political-spectacle [3], (accessed March 7, 2019).

2. “Beijing touts 'Chinese democracy' at annual national congress — but what does that mean?” By Michael Walsh, ABC News, March 3, 2019 at https://www.abc.net.au/news/2019-03-05/beijing-touts-chinese-democracy-at-annual-national-congress/10868120 [4], (accessed March 10, 2019).
3. “Chinese premier: 'We must be fully prepared for a tough struggle'” by Evelyn Cheng and Joanna Tan CNBC, March 5, 2019 at https://www.cnbc.com/2019/03/05/china-economy-2019-growth-target-set-at-6percent-6point5percent.html [5], (accessed March 7, 2019).
4. “China counts on tax cuts to buoy business in tough economic times ahead” by Jane Cai, South China Morning Post, March 5, 2019 at https://www.scmp.com/news/china/politics/article/2188760/china-counts-tax-cuts-buoy-business-tough-economic-times-ahead [6], (accessed March 7, 2019).
5. “China lowers 2019 GDP growth target to 6-6.5 per cent range” by Frank Tang, South China Morning Post, March 5, 2019 at https://www.scmp.com/economy/china-economy/article/2188625/china-lowers-2019-gdp-growth-target-6-65-cent-range [7], (accessed March 7, 2019).
6. “Beijing demands 30 per cent increase in banks’ lending to small companies in bid to boost flagging economy” by Xie Yu, South China Morning Post, March 5, 2019 at https://www.scmp.com/business/china-business/article/2188724/beijing-demands-30-cent-increase-banks-lending-small [8], (accessed March 7, 2019).
7. “China to do more to attract foreign investment in 2019” The State Council, The People’s Republic of China, March 5, 2019 at http://english.gov.cn/premier/news/2019/03/05/content_281476549643192.ht [9], (accessed March 7, 2019).
8. “China to comprehensively strengthen intellectual property protection” The State Council, The People’s Republic of China, March 5, 2019 at http://english.gov.cn/premier/news/2019/03/05/content_281476549668888.htm [10], (accessed March 7, 2019).
9. “Xinhua Headlines: China's foreign investment law to usher in new chapter of opening up” Xinhua, March 8, 2019 at http://www.xinhuanet.com/english/2019-03/08/c_137879523.htm [11], (accessed March 10, 2019).
10. “China’s rushed foreign investment law gains lukewarm response from local and international businesses” by Finbarr Bermingham, Cissy Zhou and Sarah Zheng, South China Morning Post, March 7, 2019 at https://www.scmp.com/economy/china-economy/article/2189049/chinas-rushed-foreign-investment-law-gains-lukewarm-response,(accessed March 10, 2019).
11. “Pluses and minuses in Government Work Report” The State Council, The People’s Republic of China, March 5, 2019 at http://english.gov.cn/premier/news/2019/03/05/content_281476550194604.htm [12], (accessed March 7, 2019).
12. “Refined systems aid green development” by Hou Liqiang, The State Council, The People’s Republic of China, March 6, 2019 at http://english.gov.cn/premier/news/2019/03/06/content_281476551117058.htm [13], (accessed March 7, 2019).

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