20th Party National Congress - A Recap on a Landmark Point in China’s History
This article was originally published in Italian in Panorama on 2rd Nov 2022.
Please note that this is a courtesy translation of the Italian language article originally published in the Panorama Magazine Issue at: https://www.panorama.it/congresso-partito-comunista-cina-xi-jinping
With the 20th National Congress of China’s Communist Party now behind us, a political meeting that sets out the party’s broad priorities and the next batch of leaders, we can assess how economically & commercially China will look towards the future and the effect on the European business community.
The National Congress: Historical Context
The National Congress of the Chinese Communist Party, is a party congress that is held every five years, regularly held in the months of October or November in the Great Hall of the People in Beijing. The Congress’ purpose is primarily the public venue for top-level leadership changes in the Chinese Communist Party (CCP) and the formal event for changes to the Party's Constitution.
The Congress formally approves the membership of the Central Committee, a body composed of the top decision-makers in the party, state, and society. The traditional work report, describing the Party's accomplishments since the previous Congress and giving general guidelines for the five-years ahead of the next Party Congress is also delivered during the Congress. As an aside, each five-year cycle of the National People's Congress also has a series of sessions of the Central Committee which since the mid-1990s have been held more or less regularly once every year.
20th National Congress Highlights:
Gross Domestic Product & Development Agenda Moving Forward
The initial non-specified delayed release of economic growth figures signaled alarm bells as Chinese stocks hit multi-year lows in New York and Hong Kong. The 3.9% growth rate which was abruptly announced on October 24th after the initial delay was significantly better than the 0.4% increase recorded in the second quarter, when China's economy was battered by widespread COVID-19 lockdowns but it's still below the annual official target of 5.5% set by the government earlier this year.
While much of the world is expected to face economic strife in the second half of 2022 and into 2023, the European Chamber of Commerce in China in its latest iteration of its annual publication the European Business in China Position Paper (2022/2023 edition), has recommended for China to turn its attention back to reform and opening up to reaffirm its credentials of being a reliable, predictable and efficient market.
Most importantly, as pursuing such a strategy would see China avoid punching below its economic weight. As analysis carried out by the World Bank in 2021 illustrates that if China were to implement comprehensive market reforms, its gross domestic product (GDP) per capita would reach US dollars (USD) 55,022 by 2050, over 63 per cent higher than if it were to follow a path of limited market reforms (as well as achieving an average growth rate of around 4.7% a year from 2021 to 2035.)
Outlook on China’s Zero-COVID Policy
Many have been looking to the National Party Congress in order to ascertain any signals of possible changes in the country’s policy direction. However, any hopes were initially dashed in the run up to the National Congress via the People’s Daily, which published a series of articles on the effectiveness of China’s “zero-COVID” approach.
However, according to the aforementioned European Business in China Position Paper 2022/2023, China’s stringent dynamic-zero COVID-19 policy has had a negative impact on overall operations for 75 percent of respondents to a European Chamber flash survey carried out in April 2022. A further 97 per cent of respondents reported that China’s tightening of COVID-19 containment measures had a negative impact on business travel.
The main takeaway is that China is still focused on bolstering the pillars of its zero-Covid policy, mass testing and mass quarantine facilities. A further delay in China fully reopening to the rest of the world may hand yet another advantage to other markets that can provide more openness and predictability to investors in the interim.
Domestically, What’s Next?
All in all, the 20th Party Congress report heralds a continuation of more assertive policies that have been implemented in recent times and does not give any indication of an alteration in the current course.
While the Central Committee announces the general direction to follow over the next five years, the details will be developed and fleshed out by teams of cadres at the five levels of the Chinese government — from the central to the village level.
Investors will also be able to ascertain how China will tackle economic policy in the run-up to, and during, the party's annual Central Economic Work Conference, usually held in December, which sets the economic agenda for the parliament session.
Domestically, days after the conclusion of the congress, the National Development and Reform Commission of China as well as other relevant departments issued the "Several Policy Measures on Promoting the Expansion of Foreign Investment with the Focus on the Manufacturing Industry, Stabilizing the Stock and Improving the Quality" in order to ensure foreign-invested enterprises enjoy equal support policies, financial support as well as other policies in order to better integrate foreign enterprises within the domestic manufacturing sector & solving problems faced by foreign-invested enterprises.
In order to facilitate the entry and exit of multinational companies, foreign-invested enterprises executives, technicians and their families will have access to the use of a "fast track" for the movement, providing a level of convenience for investors and professionals within the sector.
Internationally, What’s Next?
With the APEC summit in November originally conceived as a possible reconciliation opportunity for U.S.- China relations, the growing concerns that President Biden will not be in attendance leaves the possibilities of an initial dialogue between China and the Western superpower now seemingly dashed.
However, a more realistic engagement with China and the rest of the world will present itself in the 2022 G20 summit in Bali next month. Global health architecture, digital economy transformation, and energy transition have been set as priority issues to tackle at the summit in order to support global economic recovery.
Conclusions
Domestically, whether these measures are a positive sign of changes to come is yet to be seen, until that time, the European Chamber believes that by keeping the channels of communication open with business and adopting the recommendations outlined in this European Business in China Position Paper 2022/2023, China will be able to re-establish a predictable, reliable and efficient market, and set itself on a course towards achieving its full economic potential.
On the international stage, German Chancellor Olaf Scholz is set to visit China with a delegation of business leaders on November 4th, while French President Emmanuel Macron is also expected in a separate trip in November which will be the first in three years by European leaders to China after three years of Covid-enforced absence, finally ushering back person to person exchanges. After the culmination of the G20 summit and visits, major points of contention for many major economies, not only of China, will be more clearly outlined and the internal picture of how matters of carbon neutrality, COVID-19 policies and economic recovery will become all the more clearer in China moving forward.
