China now without growth objective

09:00 by Hubert Fromlet, Kalmar

Kina skippar tillväxtmålet

Brief summary in Swedish / Sammanfattning

Den 22 maj inledde Kommunistpartiets Nationella Folkkongress Kinas egen variant av parlament – sin årliga sammankomst med representanter från hela landet. Två faktorer är så här långt speciellt anmärkningsvärda. För det första har det cirka 6-procentiga tillväxtmålet för 2020 tagits bort helt och hållet som konsekvens av coronakrisen och den åtföljande extrema prognososäkerheten. För det andra vill Kinas politiska ledare nu börja bana väg för en normalisering fram till år 2021, när Kommunistpartiets prestigefyllda 100-års jubileum ska celebreras. Stimulans via lägre skatter och satsningar på infrastruktur ska bidra till kampen mot den betungande och potentiellt socialt hotfulla arbetslösheten.

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On May 22, the Communist Party of China opened its 13th National People’s Congress (NPC), two months later than originally planned. Almost 3 000 delegates come together from all over the nation, obviously to convince the Chinese and the rest of the world about the officially successful fight against the corona virus and that the economy is entering the right track again.

Or what else could be the intention and interpretation of officially reported extremely low daily numbers for new corona infections? There is no doubt that the official China wants to impress as broadly as possible within and outside the country.

An official growth objective does not make sense anymore

Despite the recent single-digit corona numbers for new daily infections, the Communist Party has now abandoned its objective for GDP growth of the current (for 2020 previously at around 6 percent). This happened for the first time since 1990. But it is a logical step. It is certainly right that – as singled out by Prime Minister Li Keqiang* the pandemic still is going on globally. Therefore more precise economic forecasts are currently impossible to prepare. Fears more exactly the “non-official fears” of a second corona wave are still large in China despite the currently very low infection numbers (which certainly should be taken with a grain of salt).

Altogether, neither domestic nor foreign demand are predictable these days, not even very roughly. Totally regarded, it would have been worse for China’s political leaders not having been able to meet a publicly given growth objective. The political leadership certainly would not have appreciated such a kind of disappointment. Thus, no goal for growth is certainly better than taking the risk of being quite wrong later on.

Nevertheless, the whole corona issue shatters many expectations, also plans for the 100-year anniversary of the foundation of the Communist Party of China next year which is considered as an extremely important event.

In the meanwhile, efforts for achieving a kind of statistically visible recovery will go on despite current obstacles. However, GDP numbers should be interpreted cautiously also in the forthcoming quarters. Furthermore, there is no applicable estimate when it comes to forecasts for the development of the central and the even more burdening local government debt. Bond markets will be used to finance, for example, planned lower taxes and investments in infrastructure – issues that are not easy to handle.

It is hard to believe that statistical accuracy and transparency have increased during the corona crisis though China had a good chance to do so at this special occasion – as I have described several times before on this page. Not really surprisingly, the fact of only few new cases of daily infections since several weeks ago raises renewed doubts about the correctness of corona statistics, particularly more recently with only single-digit new daily cases in this large country.

Anyway, it seems obvious that China wants to exit the corona crisis as soon as possible despite the – mainly locally – still existing fears of a second corona wave, may be stressed by some lockdowns in Northern China the other day.

Preparing for the important anniversary of 2021

There are China analysts who believe that the abolition of the GDP growth objective for 2020 may be a first step to more openness and transparency in the Chinese economy. However, I myself do not consider such a scenario as a potential development in the foreseeable future. In my view, much more visible and reliable evidence is needed about such potentially changing positions. This can – if happening at some point in the future – take years from now. During the years of waiting, the tone of the Chinese political leaders may change occasionally but without meaning predictable policy changes.

Altogether, the Leitmotiv for this year’s NPC is to demonstrate that China now starts to return to normal in all respects and that the Communist Party is in full control. The idea behind this is to pave a smooth way to the very important year of 2021 when the Communist Party will celebrate its 100th anniversary. The achievements of the past century “must” be presented without stint at the jubilee celebrations next year – whatever it takes.

 

Hubert Fromlet

 

*Appendix: The entire speech of Prime Minister Li Keqiang at the NPC on May 22, 2020
https://news.cgtn.com/news/2020-05-22/Full-text-Premier-Li-s-speech-at-the-third-session-of-the-13th-NPC-QHaP1FpB8k/index.html

 

 

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