The opening of this year’s “Two Sessions” of China’s National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) is taking place in the context of a very turbulent world. While the U.S.-China trade conflict, which had roiled markets world-wide, looks as if it may be approaching something of a resolution, the underlying rifts that it has revealed will not be so easily resolved.
In addition to the tariffs imposed by President Trump, which have been put on hold pending a resolution of the dispute, there has also been a great deal of clamor coming out of Washington’s “China hawks”, targeting in particular China’s high-tech industries, where the campaign against Huawei has become the tip of the spear. And while President Trump has said that he does not intend to target China’s high-tech development, much damage has already been done through the suspicions raised about Huawei’s technology and pressure has been put on U.S. “allies” to prevent them from allowing Huawei to handle their telecommunications needs.
All of these issues have implications for China as it charts its course for the next few years. From what we can see, the course set by the 19th Party Congress is still “steady as she goes.” As President Xi Jinping has indicated, the “reform and opening-up” will continue unabated and be expanded. One of the major pieces of legislation discussed by the NPC is a new foreign investment law, which will create a more “level playing field” for foreign companies interested in investing in China. This will no doubt also go a long way in addressing the concerns of foreign businesses with regard to the restrictions and bureaucratic hang-ups they may have experienced previously in their investment endeavors in China. But it is also of prime importance for China since the effort to make innovation central to economic policy necessitates more, rather than less, collaboration with foreign firms as the spectrum of innovation is thereby broadened.
The year 2019 is also a key year in reaching the first centennial goal of transforming China by 2020 into “a moderately prosperous society in all respects.” In particular, the elimination of poverty has been a key element in that perspective. And China has come a long way in reaching that goal, with 10 million people now targeted for poverty alleviation in the most remote portions of the country. The CPC’s work in mobilizing the nation behind this task has virtually assured that it will succeed.
The three major “battles” which have been designated by China’s central leadership, are the battles against poverty, pollution and financial risks. The fight against pollution has been ongoing now for years with considerable success in clearing up the air in Beijing and elsewhere and will be continued with greater effort. The fight for clean water and reviving polluted areas, bringing them back into cultivation provides the life-blood to the Chinese economy, with its still significant rural population.
More importantly, is the third “battle”, the battle against financial risks. As China opens up to the world more, including opening up its financial sector, a keen watch has to be kept in order to avoid the development of “financial bubbles” which have been so endemic in today’s international financial system. Premier Li Keqiang in his government work report indicated that appropriate measures had been taken in the past year to “handle risks in the financial sector.” And both President Xi and Premier Li have recently stressed the underlying principle of a well-functioning financial system, namely, that it must be geared solely to expanding the physical economy, an important economic principle which has become something of a moot issue in the world economy with the gargantuan growth of purely speculative financial aggregates that, far outstrip the growth of the underlying real economy.
And given the uncertainties in the international markets, with new protectionist currents in Europe and the United States, China will continue to push for consumption-driven growth. In addition to the foreign investment law, which ought to help spur domestic consumption, Premier Li noted that China will also make an effort in creating new state and local banks which can help promote the growth of small and medium-sized enterprises, a sector of the economy which often proves to be the most innovation-prone.
On the international front China is also moving forward with its important Belt and Road Initiative. While this has also been the target of the China-hawks, its success has been lauded throughout the world and at the United Nations. More importantly, it has created a new paradigm of development, based on the underlying need of infrastructure, particularly transportation infrastructure, which has helped bring the world closer together. And its success has also elicited a desire for creating a new relationship between nations, no longer based on the “beggar-thy-neighbor” philosophy of previous trade regimes, but rather on a “community of shared interests” avowed by China’s president. In fact, the growing turbulence of the present world situation provides the best evidence that such an innovative concept is an idea whose time has come.
WILLIAM JONES is the Washington Bureau Chief for Executive Intelligence Review and a Non-Resident Fellow of the Chongyang Institute for Financial Studies at Renmin University of China.