News Analysis
The Chinese Communist Party’s biggest annual political meetings—known collectively as the “Two Sessions”—started on March 4. China’s 2021 financial report card is expected to show poor economic performance, owing to Beijing’s policies that have put the country on pace for its lowest growth in decades.
During the “Two Sessions”—the meetings of China’s rubber-stamp legislature (the National People’s Congress) and the National Committee of the Chinese People’s Political Consultative Conference—Chinese Communist Party (CCP) officials will recap the country’s economic situation from the previous year and lay out guidelines and policies for the coming year, including spending and growth targets.
The 2021 crackdowns on the real estate and tech sectors were a huge blow to the economy. Beijing reined in credit to cool off the housing market and wound up sucking out all of its liquidity. Tight credit and poor consumer confidence prevented construction starts. New house loans fell by 33.6 percent year-over-year. This in turn had knock-on effects in everything from building trades to raw materials, supplies, and employment. Real estate sales, which had grown at a rate of 8 percent in December 2020, grew by only 1.7 percent in December 2021.
In the final quarter of 2021, China’s gross domestic product (GDP) growth rate slowed to 4 percent. On top of the domestic economic problems caused by CCP leader Xi Jinping’s policies, global inflation is affecting China, as is fallout from the Russian invasion of Ukraine.
Infrastructure investment has rebounded, but the export sector is slowing, the real estate sector is contracting, and the “zero-COVID” mania is costing the CCP more than it had anticipated. The unwillingness of consumers to spend resulted in household savings increasing by $855 billion, which was four times the level of the previous year. Beijing may need to step up fiscal spending in order to get more money into circulation, but this would exacerbate China’s public debt problem.
Chinese Premier Li Keqiang, who’s responsible for the economy, is expected to downgrade 2022’s growth target to only 5 percent, as opposed to 2021’s growth of 8.1 percent. Western experts believe that even this modest growth may not be achievable, given current conditions. Any money the CCP allocates toward stimulating the economy could easily be nullified by continuing COVID-19 restrictions.
An additional threat is whether China will feel the effect of Western sanctions on Russia. The total volume of trade between the two countries isn’t significant to China’s GDP, but it still remains to be seen to what extent the CCP will flout sanctions and how far the West will go to punish countries that continue to trade with and invest in Russia. The economic damage to China could be anything from zero to billions of dollars, making 2022’s economic growth forecasts even more uncertain.
It’s believed that China will experience a decrease in exports because of the lifting of COVID-19 restrictions in the United States and much of the world. During the lockdown, Americans were stuck at home, ordering products online. Now they’re beginning to shift their spending to services, movies, bars, restaurants, and vacations—all the things they missed out on over the previous two years.
For China, this means the export sector won’t experience the kind of rebound that rescued the economy in 2020. By contrast, services and consumer product companies in China are seeing the opposite effect. Nike reported a 24 percent decrease in sales in China, while Starbucks saw sales drop by 14 percent.
Xi’s vision for growth was predicated on consumption. But most of his 2021 policies were in direct opposition to this. His programs of reducing debt, cutting carbon emissions, and decreasing the wealth gap all served to drive down the economy, particularly consumer spending.
After two years of continuing lockdowns and disruptions, citizens are canceling vacations, opting to eat at home instead of going to restaurants, and just generally refusing to part with their cash. Since December 2021, Xi has been leading a policy shift away from these destructive goals and refocusing on growth.
The “Two Sessions” meetings are expected to result in policies targeted at increasing consumer spending, possibly including giving out consumption vouchers and providing subsidies for large purchases, such as automobiles. Policies have already been enacted to increase the ease of lending so families can borrow and spend more.
Commerce Minister Wang Wentao said the CCP needs to do everything it can to get people to increase their spending. He also cited the importance of extending aid to small businesses, a sector hit especially hard by the COVID-19 lockdowns.
The CCP, and particularly Xi, have based their legitimacy on the premise that their system of socialism with Chinese characteristics has promised to bring the greatest economic prosperity for China’s massive population. Maintaining stability will be a priority between now and the Party Congress this fall, when Xi is expected to begin an unprecedented third term. Chinese citizens can’t vote for their leader. But if they could, would they reelect a man whose policies tanked the economy?
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
