China’s Long Economic Covid: Will The ‘Two Sessions’ Unleash The Required Economic Stimuli? – OpEd

China’s economy has struggled to bounce back since the pandemic when the government’s draconian “Zero COVID” policy severely suppressed economic activity for three years. Despite the lifting of lockdowns in December 2022, the swift rebound seems a distant illusion.

Bloomberg data reveals several dimensions of the crises: from a wipeout of the market value of China and Hong Kong stocks by over $6 trillion from their peak in 2021, to youth unemployment at over 21 percent, to the burgeoning debt crisis, loss of consumption and developers as the China Evergrande Group and Country Garden immersing the real estate market into intensive care. In 2023, real estate investment plummeted 9.6 per cent, new home sales fell 17.3% and new home construction plunged 2.4 per cent.

These staggering losses have wreaked havoc on consumer confidence and drained private sector dynamism, thereby exerting a heavy drag on the world’s second-biggest economy. Thus, a cascade of crises, including the real estate crisis triggered by overbuilding and excessive borrowing, and unprecedented levels of youth unemployment have converged to cast a dark cloud over China’s economic landscape.

Over the past four decades, China’s economy had surged relentlessly, propelling the nation to the pinnacle of a global superpower. The export and manufacturing hub of the global economy had ensured that over three fourth of the world’s population was dependent on it for commodities or aid. 

However, the export-led growth hid domestic structural deficiencies and the tight grip on the economy has produced negative effects. China’s exports saw a fall of 4.6%, declining to $3.38 trillion, while imports decreased by 5.5% to $2.56 trillion year on year. This downturn led to China’s total foreign trade volume shrinking by 5% to $5.94 trillion in 2023.

With the US-China trade war spilling over to nations decoupling from China, and indulging in re-shoring and friend-shoring, there is little optimism for increasing inward investments. The demographic situation has not altered despite the relaxation of the one-child policy in 2016, and the symptoms of an ageing population combined with low spending and inflation do not yield any promise of consumption-aided growth. 

“Two Sessions” – towards a further tightening of Xi’s regimentation

The economic policy for the year had already been decided within close doors, days ahead of the ongoing National People’s Congress. Evidently, all expectations from the “Two Sessions”, which convened on March 4, 2024, have been for economic policy measures and a work plan to boost the flailing economy, which is struggling to ward off the effects of the zero covid policy. 

While, as expected, day one witnessed the presentation of the extensive work report from Premier Li Qiang, reviewed the past year and also shared the government’s economic growth target of 5 percent for 2024. The Premier presented the policy measures, apparently as big-ticket measures, amounting to an increase of public expenditure of $ 152 billion (over the previous year’s budgeted expenditure) with an expected deficit of 3 percent; however, the decision to scrap the premier annual press conference for the first time since 1993 has raised several questions. Evidently, the decision to scrap any meeting with the journalists brings ambiguity and uncertainty into the pathways to realize the rejuvenation of Chinese economy 

The “Two Sessions”, according to Chinese experts were not expected to make any big-ticket changes, although the focus will be to endeavour recovery in consumption, investment, and the stock market. The essence of the measures announced includes the need to integrate various equipment and consumer goods with the differentiated demand for upgrades and replacements. The policy called for increasing support in finance, taxation, and other areas, aiming to better leverage standards such as energy consumption, emissions, and technology as drivers. Additionally, it has called for the orderly promotion of the renewal and transformation of equipment in key industries, as well as equipment in the fields of construction and municipal infrastructure, transportation equipment, and old agricultural machinery, educational, and medical equipment. 

This would concomitantly, require a loosening of the regimentation of the private sector, which has experienced more than expected controls on operations. According to Neil Thomas, a Chinese politics fellow at the Asia Society Policy Institute, there appeared to be positive messages for private companies and foreign investors on the anvil. “Political signals ahead of the National People’s Congress suggest that Xi is relatively unperturbed by China’s recent market troubles and is sticking to his guns on economic policy,” he said. 

The fact that the overall policy has not been dramatically altered underlines the fact that Xi’s grip on the party and policy-making remains inflexible and unyielding. The headwinds that strike his nation provide no indication of an amelioration of either the debt burden with the debt-to-GDP ratio being at an all-time high of 287.8%, or the slump in the stock market, with the stocks already losing market value within a day of the commencement of the Session. The shorter format of the legislature, reduced to a mere seven days, instead of ten, also indicates that scepticism, suspicions and opaque policies will abound. 

The Chinese dream of surpassing the US economy, with a focus on efficiently harnessing productivity, with new quality productivity (Xīn pǐnzhí sheng chǎn lì), and to ascend to the number one position may not be visible anytime within the third term of Xi Jinping. China’s economic supremacy seems illusionary.

About the authors:

• Prof. Reena Marwah is Professor of International Business in Jesus and Mary College, University of Delhi and author of China’s Economic footprint in South and Southeast Asia. She has over 20 books to her credit, Email: [email protected]).
• Dr. Anshi Goel is Assistant Professor in Jesus and Mary College, University of Delhi