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Chinese leaders are expected to roll out new ways to boost the national birth rate. Photo: Reuters

Economy China Economy

Explainer | China’s ‘two sessions’: 7 economic points to look out for as annual meetings get under way

From unveiling the annual economic growth target to addressing demographic changes and high unemployment, China’s leadership is looking to instil confidence
A new crop of economic regulators, armed with a new reform agenda, will also be named during annual sessions of the National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference

Two Sessions 2023 (Lianghui)

Luna Sunin Beijing

Published: 10:00pm, 3 Mar 2023

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China’s legislature and political advisory bodies commence their annual meetings on Saturday. During the assembly, China’s top leadership will complete a twice-a-decade reshuffle and set the tone and budget for the year’s economic work.

President Xi Jinping is set to begin his unprecedented third term as president during the meetings, and they come as China’s economy and society at large are looking to get back on track after nearly three years of living with the crippling effects of zero-Covid measures.

China is also still facing particularly strong headwinds to its goals, both from internal and external sources, and the range of factors at play makes this year’s agenda-setting “two sessions” gatherings especially crucial for mapping out policy intentions.

Here are seven significant economic points to look out for.

1. Economic growth targets

The anticipated growth in China’s gross domestic product (GDP) will be arguably the most attention-grabbing target this year.

China’s economy failed to meet last year’s growth target of “around 5.5 per cent”, growing by only 3 per cent in 2022 – the second-lowest recorded percentage since 1976 and only slightly better than the 2.2 per cent growth reported in 2020.

This year, after China swiftly dropped its zero-Covid policies in December, analysts expect the growth target to be above 5 per cent, which would signal that “the leadership is keen to get the economy humming, but also doesn’t want to set the bar too high”, according to Trivium China, a policy research institute.

“If the government sets a high target, the pressure would be on officials to ramp up growth, meaning companies may want to revise assumptions for revenue growth in 2023,” the consultancy said.

“Conversely, a less-ambitious target would put less pressure on officials, giving them more bandwidth to focus on medium- and long-term structural issues.”

It is also well expected that Beijing will raise the fiscal deficit from last year’s 2.8 per cent of GDP to 3 per cent of GDP, with more fiscal support being used to bolster growth.

2. New economic regulators, new reform agenda

New government officials will be appointed towards the end of the two sessions, including those who will oversee the country’s economic development.

Li Qiang is poised to take the premiership, putting him on track to run the world’s second-largest economy. But uncertainties remain as to who will take the reins of several key ministries important to business, including the National Development and Reform Commission, the state planner; the Ministry of Finance; the People’s Bank of China; and the Ministry of Science and Technology.

In a recent party meeting, Xi addressed plans for a large-scale restructuring, deeming it highly crucial, and the endeavour looks to have a major economic impact on the country. More details will be unveiled during the two sessions.

China’s Xi Jinping vows ‘forceful’ reform of finance and technology sectors

3. Demographic challenges

Population issues will be one of the hottest topics for proposals this year, as China recorded its first population decline in six decades last year, further triggering concerns of the country’s deepening demographic crisis.

While more ideas on ways to boost births are expected to be rolled out, extensive discussions on solutions for a rapidly ageing society could also arise – how will China accommodate the needs of the growing number of seniors both in urban and rural areas; whether or when China will delay its retirement ages; how will China deal with a shrinking workforce; and in what ways can China further tap into the demographic dividend, which reflects the economic growth potential resulting from shifts in a population’s age structure?

Mothers in China had 9.56 million babies last year – the lowest total in the nation’s modern history, and the first time the figure fell below 10 million.

4. Employment

Employment will remain a major challenge in efforts to stabilise the economy this year, especially for young adults, recent graduates and migrant workers.

The surveyed unemployment rate for those aged 16 to 24 was 16.7 per cent in December, slightly eased from its nearly 20 per cent peak from over the summer, but still around a historically high level. Meanwhile, the figure was 5.5 per cent in December for the general urban population, after remaining at elevated levels all year.

To further compound the unrelenting obstacles faced by the young jobseekers, this year 11.58 million college students are poised to graduate, breaking the historic record of 10.76 million last year.

Ways to promote equality in the labour market, as well as proposals to further legitimise freelance work, may also be discussed.

5. Risk control

China is gearing up to get its economic activities back on track this year while simultaneously trying to mitigate financial risks that could threaten precarious economic growth.

Experts expect widening support and interventions from the government for China’s wobbling property sector, as earlier this year plans were announced to loosen the strict “three red lines” policy and allow real estate firms to borrow more while increasing the grace period for meeting debt targets.

Policymakers are likely to be concerned with controlling the implicit debt owed by local governments, and Trivium expects that the annual quota for local government special-purpose bonds could be set at between 3.8 trillion and 4 trillion yuan, down from what was effectively 4.15 trillion yuan (US$601 billion) last year.

In addition, the weakening external market means a more complicated export outlook for one of China’s most important sources of economic growth.

China’s exports in 2023 weighed down by ‘very weak’ outlook, analysts say

6. Technological self-reliance

President Xi has repeatedly called for technological self-reliance amid geopolitical tensions with the US. Experts across the board expect support to be announced for research in the field, and for the upskilling of talent.

“There will be funding from the government for both public and private research bodies to engage in R&D, with the ultimate aim of achieving self-reliance in advanced technology,” said Iris Pang, ING’s chief China economist.

Late last month, Xi reiterated the crucial importance of core technologies and achieving self-reliance, and these have become increasingly prominent topics at high-level government meetings.

Analysts from Trivium China said they expect more concrete policy to support basic research, and this could include boosting R&D spending, cultivating research talent, and increasing cooperation between universities and tech companies to replace foreign technology.

7. Restoring confidence

A big question for China is how to restore business and consumer confidence, the lack of which strikes at the heart of domestic growth.

In the past two years, the tightening market regulations and hammering crackdowns, compounded by the draconian zero-Covid policy, have diminished confidence across the board – foreign and private firms are reluctant to invest, while consumers and households are reluctant to spend amid the obscurity surrounding economic recovery.

In the absence of predictability and stability, the market is closely watching what substantial signals will come out of the meetings – anything that might help restore confidence.

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