China’s biggest political gathering of the year is finally taking place after a two-month delay. At the top of the agenda: how to tackle the country’s biggest economic challenge in decades.
Policymakers in Beijing have been tasked with keeping the world’s second largest economy afloat after the coronavirus pandemic dragged it through its first contraction since the 1970s. One of the most pressing issues they face is how to create jobs for tens of millions of people who have been left unemployed after the virus all but shut down China for several weeks.
This year’s “Two Sessions” meeting kicks off Thursday with a gathering of top political advisers to the ruling Communist Party. Then on Friday, the National People’s Congress — the country’s rubber-stamp parliament — will meet. Premier Li Keqiang is also expected to set out some economic goals for 2020, as well as policies needed to achieve them.
The government’s response to the economic fallout from the virus so far has totaled just tens of billions of dollars — a fraction of the trillions of dollars that other countries have thrown at the pandemic.
Li’s report will be particularly notable this year because of the pandemic and the deterioration of the US-China relationship, wrote Iris Pang, chief economist for Greater China at ING, in a recent research note. It’s not even clear whether China will set a GDP growth target, as it has done every year for decades.
The coronavirus has infected more than 84,000 people and killed more than 4,600 in China, according to Johns Hopkins University. Beijing says the worst of the outbreak is now over, but the economic fallout is not. Officials in China have noted in recent weeks, for example, that the country’s export business has been hurt as other countries grapple with the pandemic.
Mutual blame over the coronavirus pandemic has also reignited tensions between China and the United States, raising the possibility that the two could resurrect their bruising trade war.
Creating jobs has a lot of political significance for China’s Communist Party leaders, who see employment as key to ensuring social stability. Some experts estimate that roughly 80 million people could already be out of work in the country, equivalent to nearly double the official rate of unemployment.
The government could take several approaches to dealing with that issue, as well as work toward its goal of eliminating poverty by the end of 2020. For example, major national projects, such as plans to build new roads or railways, could prioritize employing the poor, according to economists at BNP Paribas.
The economists added in a research note late last week that they expect Beijing to approve more government spending, though it remains to be seen how that will be done. Cash handouts, for example, would be important for households that don’t have a lot of disposable income, they said.
Pang said that helping small and medium businesses will also be key, since many job losses have been concentrated there.
Pang also said that Beijing could announce during the Two Sessions a stimulus package equivalent to roughly 4% to 6% of GDP, which would amount to about $560 billion to $840 billion.
In a research note published on Thursday, Fitch Ratings said it expected China’s economy to grow by just 0.7% this year — down from 6.1% in 2019.
“The path to a full economic recovery could well be more prolonged than many initially anticipated,” Fitch analysts Andrew Fennell and Kathleen Chen wrote.
Households and small and medium businesses appeared to be recovering much more slowly from the coronavirus shock than sectors of the economy more directly influenced by government policy, a trend that could be reinforced by new announcements from the National People’s Congress.
“This has important implications for economic policy, given that consumption had become the largest contributor to overall growth [in China] over the past decade,” the analysts noted. “In the short term, this is likely to mean a reversion towards more investment-led growth, and a temporary step-back in China’s economic rebalancing and deleveraging agendas.”