Low Domestic Demand And High Unemployment Upsetting China

China may have increased its defence outlay and set up an ambitious growth rate of 5% for 2023, but perhaps for the first time, the communist leadership may not have been able to restrain itself from highlighting the myriad economic challenges the country faces.

The rare outpouring of woe in the country came on March 3, at the first session of the 5th National People’s Congress that opened at the Great Hall of the People in Beijing. Party and state leaders Xi Jinping, Li Keqiang, Li Zhanshu, Wang Yang, Li Qiang, Wang Huning, Han Zheng, Cai Qi, Ding Xuexiang, Li Xi, Wang Qishan and others attended the meeting.

Premier Li Keqiang delivered a government work report to the conference on behalf of the State Council. Significantly, the meeting admitted that China, despite its image as an economic giant and while recognising China’s achievements, “we are keenly aware that China is still a large, developing country. It remains in the primary stage of socialism with prominent imbalances and inadequacies in its development. Today, many difficulties and challenges still confront us”.

On the domestic front, the foundation for stable growth “needs to be consolidated”, “insufficient demand” remains a pronounced problem, and the expectations of private investors and businesses are “unstable”.  The task of maintaining employment stability is “challenging”.

The conference is candid that uncertainties in the external environment are on the rise. Global inflation remains high, global economic and trade growth is losing steam, and external attempts to suppress and contain China are escalating.

Again, for the first time, chinks in the country’s industrial armour were visible. Li said MSMEs and self-employed individuals face “multiple difficulties” in business and production operations. The task of maintaining employment stability is challenging, and the “budgetary imbalances of some local governments are substantial”. There are many “risks and hidden dangers” in the real estate market. 

In a rare admission, the Premier said: “There are still many institutional barriers hindering development.” China’s capacity for scientific and technological innovation “needs to be further improved”. The country has “still have a long way to go” in protecting the environment. There are still “major weak links” in urban and rural infrastructure for disaster prevention and mitigation and other purposes.

Premier Li summed up the report thus: “Weak links also persist in areas important to the people’s lives.”

In his suggestions for the government’s work this year, Li Keqiang put forward several key points: first, focus on expanding domestic demand; the second is to accelerate the construction of a modern industrial system; The third is to earnestly implement the “two unwavering”; Fourth, greater efforts should be made to attract and utilize foreign investment; Fifth, effectively prevent and resolve major economic and financial risks; Sixth, stabilize food production and promote rural revitalization; Seventh, promote the green transformation of development mode; Eighth, ensure basic people’s livelihood and develop social undertakings.

The communist government’s recommendations for meeting the targets in 2023 signal an element of caution replacing the giant manufacturer’s spirit. The tenor is populist. For instance, the government promises around 12 million new urban jobs. It admits that urban unemployment rate is around 5.5 per cent. Admitting that national and personal income growth have both fallen, the government said growth in personal income that is generally in step with economic growth while there still existed a basic equilibrium in the balance of payments.

Premier Li came up with the following priorities at the conference that reflect a back-to-the-basics economic strategy that has to first overcome the stagnation of the Covid pandemic years. He prioritized economic stability, improving preferential tax and fee policies, and extending and further refining policies on tax and fee cuts, tax rebates, and tax deferrals as the situation requires. Scientific and technological policies should aim at building up our country’s strength self-reliance in science and technology while the government ought to take concrete measures to fully implement the employment first policy and place a higher priority on promoting the employment of young people, particularly college graduates.

Continuing with the basics of economy theme, Li focused on expanding domestic demand in 2023. In this, he talked about allocating 3.8 trillion yuan for special purpose bonds for local governments this year. To modernize the industrial system, he called for making “concerted efforts to achieve breakthroughs in core technologies in key fields, redouble efforts to explore and develop important energy and mineral resources, discover more reserves, and boost production”.

Hinting at certain shifts in foreign policy, he said the government would put in “more effort to attract and utilise foreign capital”.  Focusing on food security, he wanted a stabilized grain output and to advance rural revitalization.

On the foreign policy front, Li, however, did not touch upon the conflict in Ukraine even obliquely. All he said on that front was: “We should stay committed to an independent foreign policy of peace and to peaceful development and pursue friendship and cooperation with other countries on the basis of the Five Principles of Peaceful Coexistence. We should continue working to safeguard world peace, contribute to global development, and uphold the international order.”

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