Themes and insights from the 2023 "Two Sessions"

DESPITE THEIR LARGELY PRE-ORCHESTRATED NATURE, THE SO-CALLED “TWO SESSIONS” OR?LIANGHUI?(两会) STILL SHED VALUABLE LIGHT ON THE PRIORITIES, INTENTIONS, AND PREOCCUPATIONS OF THE CHINESE COMMUNIST PARTY (CCP).?CBBC’S SENIOR CHINA POLICY ANALYST,?KENRICK DAVIS, PICKS OUT FOUR MAIN THEMES FROM THE TWO SESSIONS, AS WELL AS THEIR RESPECTIVE BUSINESS INSIGHTS

Theme 1: Consumption

If the popular Chinese expression “important things must be said three times” is to be taken literally, then consumption is tremendously important this year. Starting from December, the Chinese Communist Party (CCP) has repeatedly iterated that consumption – as opposed to just investment – needs to be a strong growth driver in 2023. From the start of the year, local governments, banks, and companies have taken the hint by offering subsidies, discounts and beneficial policies to consumers and businesses, and this top-line message was again spelled out at the Two Sessions.

• Number one priority:?In his Government Work Report (GWR), the outgoing premier Li Keqiang named driving up consumption as China’s number one economic priority. Without going into specifics, he called on the recovery and expansion of consumption by lifting wages, increasing society-wide investment and stabilising the purchase of big-time items. This message was later reiterated by President Xi Jinping and other leaders.
• Job growth:?Urban unemployment was set at 5.5% and an ambitious target of 12 million new urban jobs was fixed. If achieved, this should boost consumption and GDP.

CBBC insights:

• Improved sales:?Any uptick in consumer confidence will evidently aid domestic and foreign businesses after widespread uncertainty depressed sales last year.
• Policy benefits:?Businesses should keep an eye out for favourable policies in response to the government’s consumption call. During the Two Sessions, Beijing declared that foreign retailers setting up shop locally may claim an RMB 5 million subsidy, and Hainan has since upgraded duty-free shopping and resumed its visa-free policy for foreign travellers.

Theme 2: Private business

The Two Sessions also underscored the importance of domestic and foreign private businesses, which have been impacted negatively by?zero-Covid?policies and crackdowns in recent years.

• Protect private business:?The GWR called for the protection, support, fair treatment and guidance of private businesses. It also named the attraction of foreign direct investment as China’s fourth top economic priority.
• Premier Li Qiang’s ascension:?Towards the end of the Two Sessions, China welcomed its new premier, Li Qiang, a pragmatist and ally of President Xi whose roots and track record suggest he is pro-business. In his first talk with the media, Mr Li said that the government was “unswervingly” committed to private business and keen to promote fair competition, adding that political leaders should make friends with business people.
• Legislated equality:?On 7 March, the All-China Federation of Industry and Commerce (ACFIC) made a proposal to the State Council, suggesting a radical piece of legislation giving private enterprises equal treatment to state-owned organisations under the law. The legislation has received widespread domestic media attention but may not be adopted.
• IPR:?China’s intellectual property rights office has been placed directly under the State Council. This will give it far more authority and indicates that the government is prioritising IPR, which is essential for the fostering of entrepreneurship and innovation.

CBBC insights:

• Messaging:?Clearly, business and investor confidence will be rebuilt through action rather than rhetoric, but
• the government’s comments on private business and FDI, and the empowering of IPR organs, are positive
• signs.

Theme 3: Stability

Following a tumultuous 2022, Two Sessions changes and targets reflect the Chinese government’s desire to stabilise the economy and guide it towards more sustainable growth.

• Say it again:?“Stability” is so important, it was mentioned a record 33 times in the GWR.
• GDP growth:?An apparently unambitious economic target of “around 5%” GDP growth was set for the year. This realistic goal takes China’s current ongoing economic and geopolitical challenges into account and signals to already debt-laden local governments that massive stimulus in infrastructure and real estate is not the desired route to economic recovery.
• Financial restructuring:?China’s financial regulatory apparatus underwent significant reforms, with existing bodies being renamed, given more authority, and having their responsibilities shifted. The reform aims to give regulators more power to carry out their functions and solve the issue of abusable gaps and overlaps in jurisdiction. It moves China towards a “Twin Peaks” model of regulation where the central bank manages prudential policy, and another regulator manages market conduct and consumer protection.
• Keeping of the guard:?While a swathe of top government personnel changes was announced at the Two Sessions, two central finance leaders — Finance Minister LIU Kun and People’s Bank of China governor YI Gang — will remain in place for now, maintaining some continuity to reassure markets as structural reforms are carried out.

CBBC insights:

• Better markets:?Stability is a welcome stance following the disruptive lockdowns and confidence-rocking instability of the real estate market in recent years.
• Clarity:?The financial reshuffle may benefit related businesses by leading to more consistent implementation of policy, clearer rules, and more streamlined processes. There will, however, probably be a period of uncertainty in the upcoming months during the reshuffle.

Theme 4: Futureproofing

Several Two Sessions changes and announcements are aimed at advancing China’s technological, scientific and military capabilities in order to safeguard its security and future prosperity.

• SciTech upgrade:?The Ministry of Science and Technology (MoST) was stripped of unnecessary functions but given more authority. It’s now tasked with pooling national resources to achieve breakthroughs and greater autonomy in areas such as microchips. The creation of a new science and technology-focussed commission — a party-run body that will sit over MoST and likely be chaired by President Xi — indicates the very high priority given to this domain.
• Military upgrade:?China’s military spending was increased by 7%, the highest increase in a decade. The change keeps China as the second-highest military spender in the world, though it remains dwarfed by the USA’s military budget. The spending boost reflects an attempt to upgrade security during a period of geopolitical tension and improve its capacity to carry out humanitarian activities in the event of global crises.
• Data upgrade:?A body aimed at governing the use and commercial development of big data was created and placed under a high-level party commission — again implying that it is a high-priority area. Interestingly, one of this body’s goals is to encourage data sharing for the sake of promoting “smart cities” and an increasingly digital society.
• Fighting talk:?Highly unusually, President Xi spoke out publicly against America and the West’s “containment” of China in the midst of Two Sessions talks and called on private businesses to “fight” alongside the party. This discouraging messaging reflects underlying anxiety about wider geopolitical tensions and Black Swan events such as the US’s highly disruptive microchip chip ban on 7 October last year, and calls on ministries and companies to increase their preparedness for crises.

CBBC Insights:

• Mixed messages:?Despite President Xi’s ominous words, Premier Li – who oversees policy implementation – said that China was keen to diffuse tensions and that decoupling benefitted nobody.
• Data rules:?Conforming to China’s opaque data rules has been something of a nightmare for businesses in recent years, so any improvement on that front will be welcome.
• Investment:?China’s emphasis on science and emerging tech fields, combined with calls for FDI and foreign R&D centres, may point to business opportunities in areas such as big data, smart cities, IoT and blockchain. The UK could also benefit from joint research partnerships in fields where China is a world leader.