The pandemic has weakened China’s economy but not its leaders’ desire to assert power
JUST AS THE sun rises in the east and people need water to survive, so has China’s rubber-stamp parliament, the National People’s Congress, convened its plenary session every March and opened the session with a lengthy—nay, soporific—“work report” from the prime minister. This year is different for two reasons. First is the coronavirus pandemic, which had delayed the NPC itself by nearly three months. The second is that in the past year the Chinese government has faced protests on a scale unseen for three decades, in one corner of its domain, Hong Kong.
In his work report, Li Keqiang, the prime minister, spoke of establishing a “sound” legal system to ensure national security in Hong Kong, which has flourished in part because of its independent judiciary and political freedoms. Just before the NPC opened, China had signalled how it hopes to achieve that “soundness”: by adopting legislation that would require Hong Kong to prohibit acts of subversion against the Chinese government.
The move is unprecedented but not completely unexpected. Article 23 of China’s mini-constitution for Hong Kong, the Basic Law, requires the local government to enact such a law. But a previous attempt, in 2003, was shelved after huge protests. Recently the central government has become increasingly insistent on the need for the law, arguing that protests in Hong Kong, especially violent ones last year which it claims were aided by foreign governments, are a risk to the security of the whole country.
The proposal has already enraged activists in Hong Kong, and alarmed the financial markets. But it was far from a central focus of Mr Li’s report, which was unprecedented in an entirely different respect. Every year since 1994 the report has set a target for the year’s GDP growth rate. Every year it has achieved that target and, often, a fair bit more. On Friday, however, he announced that China would not aim for a specific growth rate, so profound are the uncertainties amid the pandemic. It was, in the Chinese context, an act of humility.
The government normally uses a GDP target to broadcast its intentions for the economy. The target has, for years, also given central leaders a way to manage local officials in far-flung places—a simple criterion by which to judge their performance. So the government remained wedded to the practice of GDP targeting even as many economists criticised it for causing distorted incentives.
But with the economy contracting by 6.8% in the first quarter and still weak in the second, there were no easy options. It would take a giant recovery in the final two quarters of 2020 just to reach, say, 3% full-year growth, the lowest in four decades. Were China to declare a low full-year target, that might have been seen as an admission of weakness. Were China to declare a high target for the second half, that might have been unrealistic given the global turmoil. In the end, it abandoned the target altogether, perhaps to be resumed next year.
In any event, it is not as if China has forsaken the pursuit of fast growth. In his annual work report to the parliament, Mr Li laid out other targets that augur well for the economy. He said the government would aim for a fiscal deficit of 3.6% of GDP, the highest on record and above last year’s 2.8% deficit. With plans for the central and provincial governments to issue an additional 4.75trn yuan ($665bn) in bonds, plus a range of unconventional financing tools, the wider deficit is likely to reach an eye-watering 15% of GDP, according to economists at Morgan Stanley, a bank.
Mr Li also said that the government wanted to stabilise the labour market, aiming to see 9m jobs created in China this year. In the past the need to hit GDP targets forced the government to stimulate the economy whenever growth slowed too much. This year, the need to hit the employment target could force the government to increase its stimulus in the coming months, says Larry Hu of Macquarie, another bank
And as weak as China’s economy is now, it is in better shape than that of much of the world thanks to its success in containing the pandemic. China’s leaders are behaving as if they are in a position of strength. The political hierarchy, always rigid in a Leninist system, looked even starker than normal: the nearly 3,000 delegates who filed into the Great Hall of the People all donned face masks, but the Politburo members and parliamentary executives, sitting in two neat rows centre-stage, were bare-faced.
Abroad, China’s diplomats have turned into “Wolf Warriors” in response to any criticism. And the country has appeared to use trade bans to punish the likes of Australia, which called for an independent inquiry into the origins of the coronavirus in China. The leadership also seems determined to bend Hong Kong to its will. Many Hong Kongers worry that the resolution to be adopted at this NPC will formally spell the end of their liberties, steadily eroded by China since it reclaimed control of the city in 1997. And observers were chilled to note that in his ritualistic affirmation of the importance of “reunification” with Taiwan, Mr Li omitted the usual qualifier, “peaceful”. It is far from a threat of invasion, but rather a clear indication that, just as it is tightening the screws on Hong Kong, so it has no intention of easing pressure on Taiwan.
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