The Two Sessions (March 2024)

The project “Dealing with a Resurgent China” (DWARC) has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement number 101061700. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union. Neither the European Union nor the granting authority can be held responsible for them. Asia Centre, Paris 2 April 2024 The Two Sessions (March 2024) Jean-Pierre Cabestan 2 Abstract The National People’s Congress (NPC) and China’s Political People’s Consultative Conference (CPPCC) annual plenary meetings — also called the “two sessions” (lianghui) — took place as planned in early March 2024 in Beijing. Nonetheless, they were held before a third plenum of the Chinese Communist Party (CCP) Central Committee, which was supposed to convene in the autumn of 2023, could be convened, suggesting possible divisions within the Party leadership. Instead, an important CCP Central Work Economic Conference was held in December, followed by several Politburo meetings deciding about the two sessions’ agenda and substance. The two sessions’ choreography was without surprise: all reports and decisions submitted by the government were approved, quasi-unanimously. Ambitious economic objectives were announced, especially a 5% growth rate for 2024 and the move towards a high-quality development model. As usual, the two sessions were also the occasion for NPC and CPPCC delegates to air some of their concerns about the situation in their locality or bureaucracy. Nonetheless, even more than before the 2024 two sessions have underscored how much the Party and General Secretary cum State President Xi Jinping in particular call the shots. Premier Li Qiang’s press conference was cancelled. New rules on the operation of the State Council, China’s central government, were adopted, putting it under closer Party watch and confirming that decisions are made elsewhere. Key findings ● No CCP Third Plenum devoted to the economy was held before the end of 2023. ● Instead, an important CCP Economic Work Conference was convened in December 2023, followed by several Politburo meetings deciding about the agenda and the substance of the two sessions. ● The two sessions announced an ambitious growth rate — 5% — for 2024 — despite the economic headwinds China is facing. ● High-quality economic development is the new priority, hiding a slower growth. ● Premier Li Qiang’s press conference was canceled, underscoring Xi Jinping’s prominence. ● The State Council, China’s central government, has been put under closer Chinese Communist Party watch. 3 Contents Contents ................................................................................................................................ - 3 - Key findings ........................................................................................................................... - 2 - Part one: Before the Two Sessions ..................................................................................... - 4 - Part two: The Two Sessions .................................................................................................. - 6 - Conclusion .......................................................................................................................... - 14 - 4 Part one: Before the Two Sessions Usually, the CCP Central Committee third plenum is devoted to economic issues. Long expected, then postponed to the first quarter of 2024, this plenum has yet to be held as this policy brief is published. 1 This non-meeting is unusual since all previous third plenums of the Central Committee have taken place on time since the early 1980s. It therefore is hard to explain but underscores possible policy divisions among the Chinese leadership. 2 In December an important CCP Central Economic Work Conference was held, de facto replacing the third plenum. And several Politburo meetings were held all the way to the very eve of the two sessions, highlighting an even stronger power concentration in the hands of Xi Jingping and the leaders whom he promoted at the 20th Party Congress in October 2022. The Party’s Central Economic Work Conference The CCP’s Central Economic Work Conference was held in Beijing on 11 and 12 December 2023. Chaired by Xi, who of course made “an important speech”, it gathered more officials than the usual CCP Central Committee plenum. 3 Apart from the Politburo members, it also included many central, local and military officials. Its objective was to strengthen the macroeconomic situation of the country and in particular to set not less than nine priorities for the coming years. These nine priorities include scientific and technological innovation, domestic consumption, job creation, urban-rural integration and foreign investment, making “invest in China'' more attractive while mitigating risks, sorting out the housing sector crisis and local government debt through financial reform, and preserving social stability. Consequently, a new balance between economic development and regime security (yijin cuowen or “promoting stability through progress”) as well as a more cautious strategy (xianli houpo or “establish the new before abolishing the old”) were then established. Made public in the final outline detailing the plan for 2024, this new balance would be confirmed in the reports presented at the two sessions. 4 1 South China Morning Post (SCMP), 27 November 2027, https://www.scmp.com/business/china-business/article/3242911/chinas-president-xi-jinpingvisit-shangha i-tuesday-his-first-trip-nations-commercial-hub-2021 2 Zhuoran Li, “China’s Third Plenum is Long Overdue”, The Diplomat, 25 March 2024, https://thediplomat.com/2024/03/chinas-third-plenum-is-long-overdue-thats-a-red-flag/ 3 https://english.www.gov.cn/news/202312/12/content_WS657860aec6d0868f4e8e21c2.html; https://www.chinadaily.com.cn/a/202312/14/WS657aa4a8a31040ac301a7cd0.html 4 “China’s Central Economic Work Conference Outlines Key Priorities for 2024”, China Brief, 21 December 2023, https://www.china-briefing.com/news/chinas-central-economic-workconference-outlines-key-priorities-for-2024/ 5 The February 2024 Politburo meeting On 29 February 2024, the Politburo (24 members, no women) held an ordinary monthly meeting aimed at endorsing the agenda of the two sessions as well as all the reports submitted to the NPC and CPPCC delegates. While referring to many of the priorities set at the December Party conference, the meeting also explicitly referred to the “complicated international situation” and the importance of 2024 as the year of the 75th anniversary of the establishment of the People’s Republic of China. 5 Chaired by Xi, it confirmed the new balance between development and stability as well as new and old policies. Xi also made a speech on the “high-quality development of new energies” and the need to improve energy security. 6 However, this meeting failed to announce the long-expected third plenum of the CCP Central Committee. ● Short of a Central Committee Plenum, the December 2023 Party Central Economic Conference established the priorities for 2024. ● A new balance between economic development and social stability was agreed upon. ● The 29 February 2024 Politburo meeting confirmed these priorities and endorsed the two sessions’ agenda and reports. Quote Under the leadership of the CPC Central Committee with Xi at its core, the entire Party and the people of different ethnic groups have withstood external pressures, overcome internal difficulties and deepened reform and opening up. They have strengthened macroeconomic regulation and control, expanded domestic demand, optimized structures, boosted confidence, and worked to prevent and defuse risks. 7 5 https://www.gov.cn/yaowen/liebiao/202402/content_6935033.htm; https://english.www.gov.cn/news/202402/29/content_WS65e040aac6d0868f4e8e474f.html 6 https://interpret.csis.org/original_author/central-political-bureau/ 7 “Xi Jinping Delivers Important Speech at Central Economic Work Conference”, Xinhua, 14 December 2023, https://www.chinadaily.com.cn/a/202312/14/WS657aa4a8a31040ac301a7cd0.html 6 Part two: The Two sessions Overview The second plenary session of the 14th NPC (2,977 members) was held from 5 to 11 March 2024 and the plenary session of the 14th National Committee of the CPPCC (2, 172 members) was held from 4 to 10 March 2024, both in the Great Hall of the People in Beijing. There were few surprises except the cancellation of Premier Li Qiang’s press conference at the end of the NPC meeting, a cancellation announced on the first day of the NPC plenary session. The NPC is chaired by Zhao Leji, No. 3 of the CCP Politburo Standing Committee and the CPPCC by Wang Huning, No. 4 of the same body. The Politburo Standing Committee is made of seven members, Li Qiang is officially its second top leader, just behind Xi Jinping. The usual number of reports were presented and approved by the NPC delegates. In addition, an amendment to the State Council Organic Law strengthening the leading role of the Party in the central government was introduced. But no nominations were made. The two State Councillor positions left vacant after the purge of Foreign Minister Qin Gang in June 2023 and Defense Minister Li Shangfu in September 2023 have not been filled up. Thus, the Executive Committee of the State Council has remained reduced to eight leaders against ten before: the Premier Li Qiang, four Vice-Premiers (Ding Xuexiang (executive), He Lifeng, Zhang Guoqing and Liu Guozhong) and three State Councillors (Wang Xiaohong, Ms. Shen Yiqin, the highest female CCP leader) including the general secretary of the State Council (Wu Zhenglong). Contrary to what many had predicted, Wang Yi (70 years old, as Xi Jinping) remained both CCP diplomatic czar and Foreign Minister and the presumed future Foreign Minister, Liu Jianchao (60), kept his position as director of the CCP International Liaison Department. Moreover, Admiral Dong Jun (63), the new Defence Minister since December 2023, was not appointed State Councillor. Finally, while Li Qiang (64) did not give any press conference, as a consolation prize, on 7 March journalists were offered a Wang Yi press conference, which gave the occasion to Xi’s top diplomatic aide to offer a tour d'horizon of China’s international successes in the past twelve months. This was also an opportunity for Wang to concentrate his attacks on the United States, responsible in his view of most of the woes that the planet is facing. Nonetheless, it should be borne in mind that, in the current economic circumstances, Beijing needs more than before a relatively stable relationship with Wahsington, whoever sits in the White House. 8 8 https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202403/t20240307_11255682.html 7 The Government Report and Other Reports As usual, three reports were submitted to the NPC delegates on 5 March: the Government (or State Council) Work Report, the Report on China’s central and local budget and the Report on China’s economic and social development plan. 9 In his report on the work of the government, Premier Li Qiang announced ambitious objectives, particularly a 5% growth rate. This was much more a political statement aimed at boosting the morale of economic actors and the Chinese society than a goal based on economic reality. He admitted that this objective would be hard to achieve but should be reached. He also indicated that the 2023 growth rate amounted to 5.2%, another optimistic result when compared with other assessments which have sometimes been much more conservative (1.5% according to Logan Wright of Rhodium Group). 10 There is a lot of continuity in terms of economic policy in Li Qiang’s message. However, ongoing deflationary risks, the real estate crisis and the lack of business confidence are likely to complicate the Premier’s action. For information, the IMF growth forecast for 2024 issued in January 2024 is 4.6%. 11 The government’s other key objective is to develop, using a Marxist jargon, “new quality productive forces”, in other words a high-quality development model. To achieve this goal and mitigate geopolitical risks, priority is to be given to self-reliance in new technologies’ research and development (+ 10% investment). This should help create new jobs – 12 million is the objective for 2024 – and boost the “three new industries”, namely electric vehicles, batteries and solar panels. But it is doubtful that these new sectors will be able by themselves to alleviate urban unemployment – officially 5.5% only -- and in particular youth unemployment, estimated at 21% in 2023 before data stopped being published and later revised (in December 2023, unemployment rate for the 16-24 age group stood at 14.9%). In 2023, 12.44 million jobs were created. 12 The stimulus package proposed by Li Qiang is much smaller and more prudent than the 2008 package introduced by his indirect predecessor Wen Jiabao after the outbreak of the world financial crisis: 1 trillion (US$139 billion) yuan against 4 trillion yuan (then around US$600 billion). This is understandable as the government does not wish to continue to fund a real estate sector in crisis and needless infrastructures but want to speed up the structural transformation to a high-quality growth and consequently to target investment to the industries of the future (semiconductors, artificial Intelligence (AI), etc.). In addition to the 1 trillion yuan centrally issued special bonds, local governments will be allowed to issue up to 3.9 trillion special bonds mainly to be 9 The English version of these reports can be found here: https://english.news.cn/special/2024lh/ 10 Through the Looking Glass: China’s 2023 GDP and the Year Ahead - Edward Conard 11 IMF revises up Asia's growth forecast, warns of China risk | Reuters 12 China’s youth-unemployment picture still blurry, social and economic risks remain even as jobless rate returns | South China Morning Post (scmp.com) 8 able to complete the most urgent real estate and infrastructure projects. However, after the closure of the two sessions, in order to reduce local government debt (around 100% of the GDP), the State Council has ordered several poorer provinces, as Gansu, Guangxi and Guizhou, to shelve a substantial number of initially approved infrastructure projects (highways, tunnels, underground systems, etc.). While the government will continue to support, “upgrade” and improve the competitiveness of state-owned enterprises (SOEs), Li Qiang’s priority is clearly to give more leeway to the private sector as well as external private investors. However, it remains to be seen whether private economic actors will regain confidence in the Chinese market: in 2023, private fixed-asset investment recorded a 0.4% drop, its first decline since 2005 and inward foreign direct investment fell 13.7% to $163.3 billion. 13 One of the fundamental problems is the persistence of local economic protectionism and as a result overproduction, all the way from EVs to batteries and solar panels, forcing Chinese enterprises to find new markets overseas. Another one is the contrast between Li Qiang’s lip service support of the private sector, and the CCP and Xi’s ambition to better control this sector in establishing Party branches in as many businesses as possible. Another big challenge that the Chinese government is facing is the sluggish state of domestic consumption. Among the measures proposed to prop up consumption that should be indicated is the central government plan to improve healthcare service and coverage. It is also worth mentioning the central authorities’ project to gradually provide equal social benefits to the 300 million migrant workers residing in cities. Today (end of 2022), while 66% of the Chinese population lives in cities, only 47.7% of it enjoys urban residency or hukou with all the benefits attached to this status in terms of health insurance, social services and education. Huang Shouhong, the director of the State Council Research Office and head of the drafting team for the government report, strongly believes that integrating migrant workers would benefit the economy and boost consumption. 14 Among the other announcement, it is important to take note of the steady increase of the defense budget (+ 7.2%, 1.67 trillion yuan or US$231 billion), consolidating the People’s Liberation Army (PLA)’ status as the world’ second armed forces behind the United States (2024 US defense budget: US$886 billion) but way ahead of any other country. Confirming China’s great power ambitions, on the side of the NPC meeting, the political commissar of the PLA Navy, Admiral Yuan Huazhi, officially confirmed for the first time the construction of a fourth (probably nuclear-powered) aircraft carrier. China’s third carrier (Fujian) was launched in June 2022 and has yet to conduct sea trials. Admiral Yuan also indicated that China now has the capability to deliver an “allround response” to the US carrier fleet in the Western Pacific. 15 13 SCMP, 6 March 2024, p. A3. 14 SCMP, 7 March 2024, p. A6. 15 SCMP, 7 March 2024, p. A6. 9 In Taiwan, there has been much speculation on the lack of reference to “peaceful reunification”. It is true that Li Qiang insisted on “resolutely opposing separatist activities aimed at ‘Taiwan independence’ and external interference”. Nonetheless, at the same time he promoted the “peaceful development of cross-Strait relations”, a formula much more liked by Hu Jintao than Xi Jinping, and recommended to advance “integrated cross-Strait development” in supporting among other things “demonstration zones” in Fujian aimed at attracting Taiwanese businesses. 16 Whether this policy will succeed is another matter: in 2023, Taiwan’s investment in China declined year on year 40% to $3 billion and its exports to China dropped to 35% of Taiwan’s total exports against 44% in 2020. 17 Debates at the two sessions On 6 March, Xi Jinping made a major remark when meeting with some NPC delegates from Jiangsu province on the side of the plenary session: it warned them against overcapacity – creating “economic bubbles” -- and local protectionism, the most authoritative indication that China’s economic development as remained unbalanced and uncoordinated, an old avowed structural weakness of the country’s economy. 18 Later in March, when inspecting Hunan, he repeated his concerns, highlighting the fact that local protectionism and over capacity were far from being a problem of the past. 19 Again, these issues are systemic, deriving from the strong role that local governments play in their constituency’s economic development strategy, and won’t be easy to overcome. The NPC meeting gave also the occasion to Ding Xuexiang, No. 6 of the Politburo Standing Committee and Executive Vice-Premier in charge of Hong Kong and Macau Small Leading Group, to ask Hong Kong delegates to speed up the adoption of the Special Administrative Region article 23 legislation on national security. 20 A few days after the NPC meeting, on 19 March, the Hong Kong Legislative Council voted unanimously for the new legislation, confirming how much the Legco has become a rubber-stamp local parliament, to the image of the NPC at the national level. Yet, on other issues, dissenting opinions emerged. For example, an important voice of caution came from Zeng Yi, a CPPCC delegate who heads a Shenzhen-based China Electronics Corporation specialised in AI. Zeng told a few dozen representatives of the science and technology community that the gap between China and the US in AI was not only still huge but also “widening”. US restrictions have forced Chinese 16 Government Work Report, p. 39; Plan for National Economic and Social Development, p. 61. 17 Taiwan’s Trade Dynamics in 2023: Challenges and Partners Shifting – Taiwan Insight 18 ‘Two sessions’ 2024: Xi Jinping says while China pursues ‘new productive forces’, it must avoid economic bubbles | South China Morning Post (scmp.com) 19 Integrate and rise together - China policy intel - Trivium China 20 A law that Hong Kong needs to enact in accordance to article 23 of Hong Kong Basic Law, SCMP, 8 March 20é4, p. A5. 16 The project “Dealing with a Resurgent China” (DWARC) has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement number 101061700. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union. Neither the European Union nor the granting authority can be held responsible for them.