[xysoom]

China’s “Two Sessions” 2022 – what it means for economy



From March 4 to March 11, 2022, the “Two Sessions” were held in Beijing. The Two Sessions are the annual meetings of the two main political bodies of the People’s Republic of China: the National People’s Congress (NPC), and the Chinese People’s Political Consultative Conference (CPPCC).To get more latest china business news, you can visit shine news official website.

The Two Sessions provide a good indication of China’s heading and priorities in relation to its economy, diplomacy, society, trade, climate and environment.In summary, the Two Sessions re-emphasized China’s priority of economic stability and focused less on climate action. This has been an ongoing theme for several years – I had written about this priority on economic growth for example after the Two Sessions in 2020 in the business newspaper Caixin and after the publication of the 14th Five-Year Plan in 2021.

What was surprising for this year’s outcomes is the (possibly over-) ambitious GDP growth target of 5.5% in 2022, which will require much government financing, possibly in infrastructure with negative consequences for environment.

Furthermore, China somewhat relaxed its climate ambitions with a more floating energy intensity target set for the whole period of the five-year plan, as compared to an annual energy intensity target.

The elephant in the room that did not see much public recognition was the war in Ukraine and its potential impacts on China and on the Belt and Road Initiative.According to the Work Report delivered by China’s Premier Li Keqiang, China’s economy in 2021 grew by 8.1% (beating most expectations). Ensuring economic stability will be the “top priority” for the government in 2022, according to the Government’s Work Report.
Financing China’s GDP growth will strongly rely on fiscal spending. While the deficit rate is said to be limited at 2.8% of GDP, the central government’s expenditure will increase by 3.9%. The central government plans to increase transfer payments to local governments by 18% to RMB 9.8 trillion (about USD 1.5 trillion). In addition, about RMB 3.65 trillion (about USD 600 billion) of special bonds will be arranged for local governments – the same amount as in 2021 and equivalent to 3% of China’s 2021 GDP (as a comparison, the EU’s Next Generation recovery plan was valued at EUR 750 billion over several years). The use of these funds has not been clearly laid out: they will “support ongoing projects, begin construction on major projects and new types of infrastructure”.

Support for small businesses. Tax and fee reductions, for example VAT exemptions or reduction in corporate income taxes, worth more than RMB 7.6 trillion (about USD 1.1 trillion) were promised in order to support manufacturing, small and low-profit enterprises and self-employed businesses, provide cash flow support to enterprises and promote consumption and investment.

Energy – “establish the new before abolishing the old”. After energy outages in 2021 (mostly due to high coal-prices and under-utilization of existing coal-fired power plants, rather than due to lacking capacity), China “will step up petroleum, natural gas and mineral exploration and development”, upgrade coal-fired power plants (i.e., “make them cleaner”), and provide “preferential policies on electricity use for industries which are experiencing particular difficulties”. The liberalization of the electricity market, which is a foundational building block of the green energy transition, was not strongly featured.

Finance – “lower interest rates”. The Government Work Report emphasized that financial institutions should lower real loan interest rates, cut fees and provide financing for small and micro-enterprises (albeit acknowledging that there is work to do for financial institutions to provide such loans due to lack of collaterals of many of those enterprises)

Innovation and investment: The government proposed to increase the proportion of R&D expenses for science and technology-based small and medium enterprises and to focus fiscal efforts on investment in energy, transport and urban infrastructure upgrades. The proposed infrastructure spending includes key water conservancy projects, transportation networks, energy facilities, pipeline networks renovation, and flood control and drainage facilities.