23.03.2016 Author: Vladimir Terehov

On Results of the “Two Sessions” Held in China

3453454344Two major events, whose significance for the life of the Chinese state cannot be overestimated, were held at the beginning of March of this year. They were regular annual sessions of the National Committee of the Chinese People’s Political Consultative Conference (NC CPPCC) and the National People’s Congress (NPC). In China, they often use a simple term “two sessions” to denote them.

Just to provide some background for the readers: NPC is de facto a unicameral parliament (i.e., it carries out the duties of the state’s representative and legislature body). NC CPPCC serves as a venue for preliminary harmonization of important state matters between the ruling Communist Party of China (CPC), several small parties, country’s business circles, the two special administrative regions of Hong Kong and Macau, Taiwan and Chinese communities abroad.

The passing of a budget for the current year is a usual result of the “two regular sessions.” However, this time two circumstances rendered the events significant. One can be denoted as an “official,” the other–”essential.”

The debating and legislative approval of the 13th five-year plan (2016-2020) of social and economic development of the country is the “official” aspect of the events. The “essential” implication of the “two sessions” was dictated by the necessity to deal with economic problems that had been accumulating for decades in the course of implementation of reforms initiated in the late 1970s by Deng Xiaoping.

This second aspect rendered the “two regular sessions” significant in the eyes of the countries–key economic partners of the People’s Republic of China, which were closely following the events to see what problem-solving approach the leadership of the second largest world economy would opt for.

A sensational interview given by George Soros as well as a study conducted by the EU’s Chamber of Commerce, presented in Beijing a week before the commencement of the “two sessions,” were dedicated to the analyses of the existing problems and generation of solutions.

It seems important to make a general remark that problems differ in scale and scope. The problems China, today’s second global power, faces nowadays arose due to the country’s rapid economic development (at a rate unseen since the 1930s economic boom experienced by the USSR).

One of the most important results of the Chinese “economic miracle” was the growth of the population’s overall welfare: today China leads the countries of the world in terms of the number of citizens traveling abroad. In 2015 alone 120 million Chinese tourists spent about $200 bn abroad.

As for the existing problems, most probably the strategy Chinese leadership uses to identify and resolve them is similar to the one developed by foreign experts.

Would anybody deny that “zombie companies” are turning into an unbearable burden for Chinese economy? – Of course, not.

Is the recommendation to concentrate on the development of the domestic consumption market correct? – The leadership of the CPC has been working toward this objective for quite some time now.

Does the implicit and explicit protectionism of the domestic producers obstruct the activation of foreign business in China? – Naturally, yes.

Does the country have to shift away from the “cheap” (coal) energy not to ruin the health of its population? – This is the only option out there.

It is a different story that practical implementation of the recommended solutions at the macroeconomic level might have a negative impact on the country’s social life. For example, there might be an increase in the latent and registered unemployment rates.

Since the cost of “clean” energy will be inevitably higher, China might run into a problem when the goal of achieving and maintaining a “moderate” rate of economic growth would be upset by the goal of the simultaneous shift to the “green economy.” If the two goals contradict each other, China might face negative consequences mentioned above. It is no wonder that China is often depicted as a cyclist spinning the “economic pedals” not to fall.

On the other hand, this problem is not specific to China only. Each country has to balance between social commitments and notorious “laws of economy.” This problem is perceived as the key stumbling stone in the formation of the Transatlantic Trade and Investment Partnership since Europe and the US have different notions of how to handle it.

Talking about the US, we can speculate that most probably the phenomenon of Bernie Sanders and Donald Trump in the run-up to the presidential election has to do with their intention to “Europeanize” the US, i.e., to get the state to assume more of social responsibilities (and Mr. Sanders expresses this idea more clearly). Since Mr. Sanders promotes himself as a socialist, his outright rejection of the Transpacific partnership as a purely political (anti-Chinese) project, contradicting the interests of American people, quite nicely fits into his political program.

Participants of the “two sessions” focused on the same problem of balancing between the social commitments and “the laws of economy.” But it is too early to tell how well they managed the task. And not only because of scarcity of data (so far only a summary of the China’s core state activity in a form of some statements and numbers have been made public). But, above all, because a tree is judged by its fruit, which we should see fairly soon.

The statements and some key numbers mentioned above were presented in the 14-item resolution Goals, Missions of China’s New Five-year Plan adopted by the NPC and published on March 13. The document also provides an outline of the strategic approach the Chinese leadership intends to apply to resolve the key economic issues voiced both by Chinese and foreign experts shortly before the beginning of the “two sessions.”

The document’s first item “Growth” strikes the keynote of the entire document. Its two sub-items explain what the Chinese leadership implies today when speaking of the “further development of Chinese economy”:

  • Keep medium-high growth to double China’s GDP and per capita income by 2020 from the 2010 level.
  • Promote innovative, coordinated, green, open, and shared development.

The items that follow further expand the two principle statements. For example, the “shared development” principle is further elaborated in the “Opening up.” Its seven sub-items suggest that China’s strategy of future economy development will be directed away from isolation and toward further integration into the world’s economy.

To maintain a “medium-high growth,” China decided to gear down its defense budget. In the last five years, the growth rate of the defense-related expenditures was maintained at about 10% per annum. Three-four months ago, foreign experts forecast that in 2016 this number would go up to almost 12%. However according to the 13th five-year plan, the growth rate will be kept at the level of a “moderate” 7.6% in 2016.

Overall, the strategy of a rather radical shift in the economic policy, the second world power adopted, corresponds to the challenges that emerged because of the problems accumulated in the recent decades. How successfully the country can implement this strategy will be seen when it applies it to practice.

But even today it is obvious that China is entering a new challenging phase of its contemporary history, and the new economic policy approved by the “two recent sessions” will, most probably, prove painful for many Chinese.

Protests of coal miners in the northeastern Heilongjiang province, who already experience the effects of the “optimization” of the Chinese coal mining industry principle first-hand, provides a rather fair illustration to this prediction.

Vladimir Terekhov, expert on the issues of the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook.”