Delegates at the opening of China’s annual political conferences on Monday were invited to apply their well-worn rubber stamps to a retread of 2017’s economic plan. Chief economic planner Liu He promised this year’s World Economic Forum that his country would surprise foreigners with the aggressiveness of its reforms. Not so far.
China’s “two conferences”, held every year in Beijing, can seem farcical: empty rituals in which unelected Communist Party delegates happily endorse whatever is proposed, including the recent plan to remove term limits for President Xi Jinping. But the economic targets presented are serious, and Monday’s are seriously uninspiring.
For starters, the “around 6.5 per cent” GDP target will be rolled over from last year, and broad M2 money supply and aggregate credit provision will keep growing at around 8 per cent and 12 per cent respectively. That implies limited deleveraging and suggests Xi will waste much of his new strength kicking the metaphorical can even further down the road: a recipe for economic calcification at home and conflict abroad. Xi is clearly preparing for the latter. The defence budget will grow 8.1 per cent, up from 7 per cent in 2017.
The reports do mention reforms. China will further reduce energy intensity, open markets to more foreign investment, and somehow force pesky local governments to stop running up bad debts. Li will keep trying to cut tax and paperwork burdens for private businesses. Officials also want to improve a troubled debt-to-equity swap programme for struggling state-owned heavy industries. Fine, but investors have heard all this before.
So long as the money supply keeps out-growing the economy’s actual needs, as it has been doing for years, imbalances will increase. Even after investment in growth industries like artificial intelligence, funds will keep pouring into Chinese firms fighting price wars using cheap credit. This provokes trade tensions, and increases non-performing debts in the mainland financial system.
Liu’s recent visit to Washington was unfruitful: Xi’s top aide appears to have been denied an audience with Trump, and the two country’s economic dialogue, once a top strategic priority for the United States, remains in the freezer. This unambitious plan might help explain why.