Decoding China: National People’s Congress meets at bad time

“When it rains hard, it gets muddy. But we must not bow our heads,” Li said. “Keep your chin up! When the time comes, we will surely see a rainbow. The economy has a natural cycle, in China as well.”

And Li seems determined to reboot the world’s second-largest economy and make it fair, competitive, and sustainable.

The global situation, however, is getting worse. Countries are increasingly turning to protectionist policies and the global demand is dwindling. Even China’s internal economic indicators are pointing downwards. The country’s real estate industry is in ruins after construction giant Evergrande was forced to close, depriving the nation of its main engine for growth.

Internal demand for goods remains lackluster. Consumers prefer saving money to spending it and the prices are dropping. Experts warn of deflation, which — seen from a countrywide perspective — could be even more dangerous than inflation. During deflation people often hold off on major purchases in hopes that prices will drop even further. Investors are cutting back on investments, the unemployment is rising.

And just ahead of the Lunar New Year in February, the CSI 3000 stock market index dropped to a five-year low. Beijing responded by replacing the top leaders of the stock market supervisory body. The index, which is based on trading in Shanghai and Shenzhen, has somewhat recovered since then.

Searching for Li’s ‘rainbow’

Now, Li Qiang is due to present a comprehensive report to the National People’s Congress, the plenary session of the Chinese parliament, which will meet in Beijing next week. Nearly 3,000 delegates will be waiting to hear the prime minister’s plan to correct the course of Chinese economy.

The magic threshold is 5% growth per year. In 2023, China’s gross domestic product (GDP) grew by 5.2%. This year, meeting that threshold seems like a Herculean task. At the end of January, the authorities tried to sugarcoat a bitter message coming from nearly half of China’s 31 provinces. In an official statement, they said that “13 provinces have raised their growth targets compared to the real percentage GDP growth in 2023.”

However, 13 others have reduced their growth goals, and the remaining five hope to stay at the same growth level as last year, around 5%.

Quo vadis, China?

The people are expecting answers from Prime Minister Li, who only took the office a year ago. At the last day of the Beijing conference, he is due to meet the international press. The conference will be broadcast live with simultaneous translation in English. It has already been planned down to the smallest detail, including who gets to ask questions. But the interest for what Li might say remains high.

With the real estate market in crisis, internal consumption must serve as a way out, says Jinny Yan, chief China economist at the London-based and Chinese-owned ICBC Standard Bank.

“The consumer confidence in China dropped once again in the last quartal of 2023,” she said at a conference in Frankfurt. “Reviving consumption remains key for growth.”

Billions flowing from Germany

Chinese politicians seem to be considering another way of boosting growth — by funneling more money from abroad through foreign direct investment (FDI). Even today, China needs foreign capital and know-how, especially in less developed provinces.

The German economy plays a major role in this plan. According to the German Bundesbank, German business set a record last year by investing nearly €12 billion ($13 billion) via FDI into China.

In December, Beijing unilaterally lifted visa requirements for citizens of Germany and several other EU nations who are planning to stay in China 15 days or less. The visa liberalization for Germany, France, the Netherlands and Italy is set to stay in force until the end of 2024. Irish and Swiss nationals were added to this list in January.

Jens Eskelund, the head of The European Union Chamber of Commerce in China, praised the liberalization as a “concrete and practical improvement” for investors.

“China is really open for business,” Eskelund told Germany’s business newspaper Handelsblatt.

“Decoding China” is a DW series that examines Chinese positions and arguments on current international issues from a critical German and European perspective.

The article was originally written in German.