China policy: the “two sessions” meeting convenes
by Guillaume Dhamelincourt, Business Development–Product Specialist, JK Capital Management Ltd., a La Française group-member company dated March 8, 2021
Last week (week of March 1st) the annual “two sessions” meeting started in Beijing. The six-day conference is a high point of Chinese policy with thousands of National People’s Congress (NPC) deputies and Chinese People’s Political Consultative Conference (CPPCC) members converging on Beijing’s Great Hall of the People for China’s largest annual political event. The meeting is usually when many announcements are made, and targets set. This year was particularly important as the 14th Five-Year plan was announced and published during the event. Although the meeting is not over yet, there are several things that can be already commented on.
The one that caught most commentators’ eyes was the GDP growth target for 2021 announced at “above 6%”. Many thought the practice of announcing GDP targets would be abandoned as the government wants to focus on qualitative growth rather than meeting a hard number, but they were still surprised to see such a low number considering that everyone expects the 2021 GDP to be high, catching up the missed growth of 2020. The loose “above 6%” target likely means the number is less important than the quality of the growth. It may also be interpreted as a signal that no major monetary policy change will be made and little to no stimulus to the economy is to be expected with the Covid crisis now apparently in the rear-view mirror. More indication of this no thrill policy can be seen in the budget. The budget deficit target has been lowered from “at least 3.6% of GDP” in 2020 to “around 3.2%” this year. Meanwhile, the quota for local special bond issuance, which takes place outside the general budget, was lowered from RMB 3.75trn (3.7% of GDP) to RMB 3.65trn (3.4% of GDP). The budget report also ruled out a repeat of last year’s sovereign special debt issuance and social security waivers, which together were worth 2.5% of GDP. All told, this points to fiscal tightening of at least 3.0% of GDP this year.
On Friday (March 5th), the 148-page summary of the 14th Five-year plan was released. The tradition of the Five-year plans is very important and gives strong indications on future policies as well as the mindset of the leadership. For the first time it did not mention any average growth target for the coming five years, which is more in line with the aim to focus on quality growth as mentioned above and to set the right policies for the long term prosperity of China. As an official summarised the plan: China is aiming to lift its economic, technological, and national strength to a new, higher stage in the next five years, under a sweeping blueprint that puts heavy emphasis on improving domestic economic conditions, boosting technological innovation and national security, while leaving sufficient room to cope with mounting risks and challenges.
Security was one of the key new features of the plan with a special section aiming to bolster national security systems and capabilities and setting arrangements to ensure food, energy and financial security. The plan also aims to implement a "dual circulation" development strategy that focuses on boosting the domestic market, enhancing technological self-efficiency and independence with significant increase in R&D, and promoting environmental protection through investments in renewable energy.
Other noticeable, though expected, elements of the plan aimed at promoting urbanisation with a target of reaching a 65% urban population (Hukou reforms are expected to facilitate it), increasing expected life of Chinese citizens by 1 year, keeping urban unemployment below 5.5% and pursuing the high-quality development of the belt and road initiative.
Altogether nothing particularly surprising came out from the meeting so far. Only a confirmation of the long-term goals of the Chinese leadership and the means attached to them. Such stability and aim give us confidence in the Chinese market beyond the tumultuous volatility of the recent weeks.
Source: JKC Internal Research
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