China's Economic Uncertainty Casts a Shadow over the National People's Congress

China's Economic Uncertainty Looms Large at the National People's Congress

The annual meeting of China's National People's Congress (NPC) commenced in Beijing on March 5th, coinciding with the arrival of spring according to the traditional Chinese calendar. However, despite the seasonal signs of renewal, a pervasive sense of uncertainty looms over China's economic and societal future.

An extended slowdown in economic growth, compounded by a slump in the real estate market, has led many citizens to lose hope in the promise of a better tomorrow. Marriages plummeted by 20% last year, and the unemployment rate among urban youth stands at a staggering 16.1%.

Further complicating the nation's challenges is the trade policy of the U.S. administration under President Donald Trump. A brewing tariff war threatens to contract trade with the United States, which makes up 30% of China's trade surplus. This scenario makes it increasingly difficult for Chinese policymakers to rely on foreign demand for economic growth.

Despite the challenges, Premier Li Qiang maintained an optimistic stance, announcing an economic growth target of around 5% in his government activity report at the NPC. However, the critical question remains whether the strategies to achieve this growth are both reasonable and adequate.

Li announced an increase in the ratio of the fiscal deficit to gross domestic product (GDP) from 3% to 4%, indicating a move toward a more expansive fiscal policy. The primary economic policy focus outlined in the report is to boost consumer spending, with an increased budget allocation for the policy initiative to support the replacement of consumer goods. However, the impact of this program is anticipated to be temporary.

A more effective way to alleviate anxiety among consumers would be to improve the social security system, especially considering China's transition into an aging society. However, this year's report shows no substantial changes in these areas. In contrast, the defense budget has seen a 7.2% increase from the previous year, surpassing the growth rate of the overall budget.

President Xi Jinping's administration is turning its attention to the private sector as a means to rejuvenate the stagnant economy. However, the effort to draft the private economy promotion law, which aims to ensure equal treatment for private enterprises and facilitate their involvement in national projects, has been under way since last year and is not included in the current NPC session's agenda. There is strong hope that deliberations will be expedited to enhance future opportunities for private sector growth.