China's slowing economy casts shadow over NPC

Thousands of delegates from across China have descended on Beijing to attend the annual gathering of the National People's Congress (NPC), which kicks off on Tuesday and ends next Friday (March 5-15).

The NPC is often viewed as a flaccid legislature whose role is largely ceremonial. Its delegates are expected to give their stamp of approval to decisions that have already been agreed upon by senior leaders of the Communist Party of China (CPC). The NPC, which has been meeting since 1954, has never rejected a proposed law.

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Simultaneously, the Chinese People's Political Consultative Conference, a political advisory body, will also convene. The meetings are typically called the "Two Sessions."  

Observers say discussions at the Great Hall of the People in Beijing are likely to revolve around economic and trade issues, as the meeting comes amid growing pressure on Beijing to reverse China's economic slowdown and resolve the trade spat with the United States.

On Tuesday, Chinese Premier Li Keqiang will deliver his government's work report to NPC delegates, which will set targets for GDP expansion, inflation, fiscal spending and other factors.

Analysts expect this year's GDP growth target to be between 6 and 6.5 percent — lower than in previous years. Over the next two years, the government needs growth of over 6 percent to reach its goal of doubling GDP and income from 2010 to 2020.

Multiple challenges

In 2018, China's economy expanded at its slowest pace in almost three decades, with GDP growth slowing to a 28-year low of 6.6 percent. To boost growth, some analysts expect more fiscal and monetary easing, in the form of a cut in the value-added-tax rate and an increase in credit growth.

The challenges facing the Chinese economy include decreased public investment and weak consumer confidence, as well as a huge debt pile and growing stresses in the shadow banking sector. The Chinese government is also slow when it comes to reforming the nation's inefficient state-owned enterprises.

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Experts say the Chinese financial system remains vulnerable to crises, although the government has taken steps over the past couple of years to reduce risks.

"The opaque lending by the shadow banking system has collapsed. And an increase in defaults shows how crisis-prone the financial system remains," Max Zenglein, an economist at the Mercator Institute for China Studies (MERICS) in Berlin, told DW. "For the government, combating risks in the financial system will remain a key area for ensuring economic stability in 2019," he added.

Compared to a decade ago, China's economy is now less dependent on exports and manufacturing, with the service sector and consumption playing a more important role in supporting growth.

Tariff conflict

Still, mounting trade tensions with the United States have restrained investment and impacted the growth outlook, particularly for the export-oriented sectors.

Both the US and China have slapped billions of dollars worth of tariffs on each other's goods and are currently negotiating a deal to end the dispute. Fears abound over China's growth taking another hit if a three-month truce ends in March without any deal in place.

"I have heard about factories in Zhejiang, Jiangsu and Guangdong provinces suspending operations as they try to figure out the impact of the trade conflict on their businesses," He Jiangbing, a Chinese economic analyst, told DW in February. 

"Some of our US clients have already moved their orders to Southeast Asia where the labor costs are lower than here," said Cheng Renyong, president of Hemaosheng Socks Co. Ltd. "It's had a big impact on us. The impact will get worse if the trade war between China and the US escalates, especially in the number of orders which will greatly affect us."

No forced tech transfers?

In a bid to address US concerns over trade and intellectual property theft, NPC delegates are expected to rubber stamp a series of policies, including a proposed new foreign investment law.

"The law will specifically ask local governments not to force foreign companies to transfer core technologies to their Chinese counterparts," said analyst He Jiangbing.

At a news conference on Monday, NPC spokesman Zhang Yesui reiterated Beijing's desire to find a mutually acceptable resolution to the tariff dispute with the US.

The new foreign investment law comes after Beijing further opened up the Chinese automotive and financial sectors last year.

Despite the new measures to create a level-playing field on the Chinese market, state capitalism continues to dominate Chinese economic policy, say analysts. "The government leaves nothing to chance when it comes to making China more technologically independent from foreign countries or achieving growth targets," MERICS analyst Zenglein said.

"Private companies play an important role in strategic areas such as artificial intelligence or the IT sector. As a result, the party is also expanding its control there to ensure that national goals are achieved."