No target on GDP
As some analysts had anticipated, the Chinese leadership has decided not to set a growth target for this 2020, after closing the first quarter with a thump of 6.8%. The official target has never been completely reliable, it is reached “by definition”, but it is relevant for the message it sends. And in this case the pragmatic message is that China will not pursue growth at all costs. It means that the goal of doubling the GDP by the end of the year, compared to that of 2010, one of the secular goals of well-being set by the Party, will go into the background or will be set aside.
At the same time, however, the government shows that it is ready to support the economy with an expansive fiscal policy. This year the deficit will breach the 3% ceiling, considered to date a limit not to be exceeded, reaching 3.6%. It is a course correction with respect to the priority of containing the debt, the great battle waged by Xi Jinping in the last few years. But it is justified by exceptional circumstances. The Monetary Fund expects annual growth of 1.2% for China, which would be the lowest ever, but some analysts are also more pessimistic.
The objectives: work and poverty
The Party’s action will therefore focus on, so to speak, qualitative objectives. The first is to safeguard employment, the great emergency that China (like most of the world) is facing right now. Official figures are not very indicative, but analysts’ estimates speak of tens of millions of people left without jobs, most of them without forms of support. The government has pledged to create 9 million jobs in cities, up from 11 last year, despite much lower growth, and to keep the unemployment rate in metropolises at 6%.The second objective will be to eradicate poverty by raising the 5 and a half million people who remain below the poverty line. Investment, growth and even reforms will be necessary according to Li, but subordinate to these two objectives, fundamental in the eyes of the Party to maintain social stability. To raise resources, the government will issue bonds worth one trillion yuan and has almost doubled the share of special bonds assigned to local authorities, to 527 billion dollars, which will be asked to invest mainly in digital infrastructures. Overall, analysts calculate Capital Economics, the fiscal stimulus will amount to 4% of GDP for this year, similar to that put in place after the 2009 financial crisis.
The military budget remains high
The other key figure in the premier’s annual report is military spending, which will grow 6.6% this year. It is less than 7.5% last year, but much higher in proportion to the GDP which will be much lower. The Chinese experts themselves expected a lower figure, but faced with the challenge with the United States, China cannot stop the advancement of its military force, not to mention that the army is also a source of occupation. However, Chinese military spending, which has steadily increased in recent years, remains much lower than that of the United States. Not much, however, in Li’s speech on “welfare” reforms, despite the epidemic highlighting the delays in the Chinese health system. The premier announced a small increase in health benefits for citizens residing in rural areas and for internal migrants and acknowledged that the prevention system should be strengthened.
The squeeze on Hong Kong
No reference, in the speech of Li Keqiang, the National Security Law for Hong Kong. But according to the official agenda, the National Assembly should start dealing with it today and the norm could have such an impact as to eclipse any other issue. If the Beijing parliament were to introduce it autonomously, bypassing that of the former British colony, it would be an unprecedented intervention, intended to question the effective autonomy of the city. The law would prevent acts of treason, secession or subversion against the central government, and would allow authorities to severely punish demonstrations such as those seen last year. Yesterday Trump said that if it were approved, there would be an American “strong reaction”, in theory the United States could also cancel the privileged commercial status granted to Hong Kong. And certainly there would be a reaction among Hong Kong citizens, who could return to the barricades. The potential impact of the measure is underlined by the thud of the Hong Kong Stock Exchange, which today loses more than 5%.