Ahead of the most important political meeting of the year in China, observers are speculating about the future course of the second largest economy. German companies are hoping for a signal of change.
When the People’s Congress opens this Tuesday in the Great Hall of the People to the sounds of a powerful military band, German business representatives will also be watching closely. They hope for clues about the future of the ailing second-largest economy.
Tough debates like those in the Bundestag are not planned at the parliament’s annual meeting in Beijing, which usually lasts around two weeks. A narrow leadership circle of the Communist Party had already made all important decisions in advance. The approximately 2,950 delegates who were not freely elected only give their blessing. It has never happened before in the history of the assembly that a proposed bill was rejected.
Nevertheless, for many international observers, the congress is the most important political event of the year in China because it provides information about the country’s future course – including the currently ailing economy.
The country is in deflation
The real estate crisis continues to have an impact in China. Major real estate developers are facing massive debt problems that pose risks to the banking system. Many Chinese people are also holding back on spending money because their apartments are suddenly worth less. This is evident both at the checkout and in larger purchases that are postponed due to the existing uncertainties.
Against the background of low demand, prices are falling and the country is in deflation. At the same time, the financial markets are also in crisis. While Western stock markets are recording record highs, prices in China have been falling for three years.
“So far, the disillusionment from the previous year seems to be continuing,” says Maximilian Butek, head of the German Chamber of Commerce (AHK) in Shanghai, summarizing the economic situation: “We see that the measures taken so far are not enough to boost consumer confidence and the economy as a whole “More simply has to happen,” said Butek.
Government accountability report
The expectations of the National People’s Congress are therefore “particularly high”. Strengthening private consumption is at the top of the wish list of German companies. “There needs to be a roadmap for how the economy should get going again in 2024,” demands Butek.
But will the People’s Congress deliver? The new Prime Minister Li Qiang, who will present the government’s annual report, could send signals right at the beginning. In addition to a review, his report will also contain an outlook on the most important goals for the new year. The head of government will also announce the growth target for this year. Li is considered business-friendly, but the real power lies with state and party leader Xi Jinping.
He would have had the chance to send a positive signal to the economy at a party leadership meeting last week. But here too, only moderate help was promised at best. “Proactive fiscal policy should be appropriately intensified,” said a Politburo communiqué, without naming specific measures.
Analyst: “Bitter medicine”
Many China experts no longer expect the People’s Congress to be a major liberation blow for the economy. Domestic and foreign companies want an economic stimulus package like the one after the 2008 financial crisis, when Beijing spent billions to stimulate the economy, but also increased debt.
But Xi is pursuing other goals, says Jacob Gunter, analyst at the Merics China Institute in Berlin. The government is deliberately administering “bitter medicine” to the economy and citizens. Short and medium-term economic concerns would be put aside in favor of the desired realignment.
The aim is, among other things, to reduce the economy’s dependence on the real estate market. Houses are for living in, not for speculation, has long been the head of state’s mantra. Instead, growth should be shifted to more sustainable and productive sectors.
Xi also wants to lead the second-largest economy in terms of technology and, against the background of geopolitical tensions, reduce dependence on the USA. What is currently being left behind in the implementation of this vision are the everyday worries of many Chinese people.
Source: Stern
