Finance

China plays up business opportunities amid increasing U.S. protectionism

Chinese president Xi Jinping and premier Li Keqiang, right, singing the national anthem at the opening of the National People’s Congress at the Great Hall of the People on May 22, 2020 in Beijing, China.

Kevin Frayer | Getty Images

BEIJING — Chinese Premier Li Keqiang used a key meeting Thursday to highlight the opportunities China offers to foreign businesses, in the wake of the coronavirus shock to the global economy. 

His comments come as tensions between the U.S. and China continue to escalate.

“We believe that all members of the global community should pull together in a sense of partnership to prevail over the current difficulty,” Li said after China’s annual parliamentary meeting concluded, according to an official English translation of his Mandarin-language remarks. 

He reiterated would China would open its markets further to foreign businesses, and how Beijing and Washington should continue to find ways to work together, despite differences that have arisen. 

“We have all along rejected the ‘cold war’ mentality and decoupling among two major economies will do neither side no good and it is also harmful for the whole world,” Li said.

“I believe economic cooperation and trade between our two countries should continue to follow business rules,” he said. “We should leave the decision to the market and to business leaders.”

The highlights for the roughly week-long National People’s Congress meeting included discussions on economic priorities and stimulus, and the passing of a new legislation on Hong Kong. The high-level annual meeting comes as China faces the new challenges brought on by the coronavirus epidemic.

Li, the country’s second-in-command, spoke with reporters following the closing ceremony of the NPC, which typically takes place in March. This year, however, the meeting was postponed due to the virus outbreak.

China’s economy

One of the first major announcements at this year’s parliamentary meeting was that the world’s second-largest economy would not announce an annual GDP growth target for the first time in decades.

Li cited the uncertain impact of the coronavirus pandemic, which first emerged late last year in the Chinese city of Wuhan and has since infected more than 5.6 million people worldwide. 

Instead, Chinese officials emphasized that jobs would take priority and set a target unemployment rate of 6% for urban areas. Ensuring hundreds of millions of people have jobs — especially for a record number of university graduates this year — is critical for social stability and growth in an economy set to rely more on domestic consumption.

Authorities also said they remain committed to policy goals such as eliminating poverty, supporting foreign investment into China and developing digital infrastructure, such as 5G

The unemployment target implies growth of about 2% or 3% this year, according to Macquarie’s chief China Economist Larry Hu. The Chinese economy contracted 6.8% in the first quarter, and the unemployment rate reached a record high of 6.2% in February.

Hong Kong security law

Second, the central Chinese government strengthened its control of the special administrative region of Hong Kong with a new security law aimed at anti-government protesters who have taken to the streets in the last 12 months. What started out as peaceful protests over a controversial extradition bill turned increasingly violent, severely disrupting business activity and contributing to the Hong Kong’s first recession last year since the financial crisis.  

The law would bypass Hong Kong’s legislature, cutting into the former British colony’s ability to operate independently. Many worry the law will also reduce the city’s attractiveness as an international finance and trading hub. Such concerns were publicly pushed back by Chinese officials during the week-long parliamentary meeting.

On Wednesday, U.S. Secretary of State Mike Pompeo told Congress that Hong Kong was no longer independent from the central Chinese government. However, it’s unclear what action the administration of President Donald Trump might ultimately take in removing Hong Kong’s special trading status with the U.S. that grants the territory benefits such as lower tariffs.

Less emphasis on GDP target

Third, China took a rather moderate stance on government stimulus, despite the coronavirus derailing growth.

The nation has gradually returned to work after more than half the country extended the Lunar New Year holiday by at least a week in an effort to control the spread of the disease. While the outbreak stalled domestically by mid-March, the virus spread overseas in a global pandemic and forced governments worldwide to enact similar lockdowns and restrictions on business activity.

Covid-19 has killed more than 4,600 people in China and over 100,000 in the U.S. The global death toll now has exceeded 355,000 deaths worldwide.

Chinese Premier Li Keqiang wearing a mask talks with staff members as he visits the construction site where the new hospital is being built to treat patients of a new coronavirus, following the outbreak, on the outskirts of Wuhan, China January 27, 2020.

cnsphoto via Reuters

This year, Chinese authorities said they would pursue “prudent” monetary policy, while stepping up fiscal policy measures with a goal of “more than 3.6%” deficit-to-GDP ratio. In addition, China said it plans to issue 1.6 trillion yuan ($228.6 billion) more than last year in special local government bonds, for a total 3.75 trillion yuan for 2020. 

Overall central government expenditure is set to decline 0.2% this year, including an 11.8% drop to 54.3 billion yuan on foreign affairs, spending on national defense is still set to increase, up 6.6% to 1.27 trillion yuan.

China also plans to press on with some economic stimulus measures that it accelerated amid the coronavirus outbreak —such as tax and fee cuts for smaller businesses, and encouraging banks to issue more loans. 

The officially reported, but highly doubted, growth rate for the world’s second-largest economy has been slowing over the last several years, amid concerns about the quality of growth and rising debt.

The removal of such a target this year indicates Beijing will not put so much pressure on local governments to achieve a certain growth figure.

Communist Party newspaper People’s Daily reported that President Xi Jinping said last week that forcing efforts to achieve a GDP growth target amid the uncertainties brought about by the coronavirus did not align with the country’s economic and social development goals.

“What we seek is efficient scientific development, a new development concept,” he said, according to a CNBC translation of the Chinese text. “(We) seek the happy and beautiful life of the masses. Actually, when pursuing these, it may also gradually reduce a decline in the growth of domestic production, but the focus cannot be placed on GDP growth.”

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