Latest Updates on China Matters
This article was originally published in Italian in Panorama on 21st Apr 2023.
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/news/dal-mondo/ultimi-aggiornamenti-dalla-cina
Introduction
An eventful few weeks to catch up on in the Far East, as China’s most important annual political meetings were recently wrapped up, following a number of major announcements, restructuring of institutions and the confirmation of several key appointments over the course of 10 days. The two sessions – the meetings of China's parliament and political advisory body – kicked off on March 4th and are the biggest events on the country's political calendar.
In addition, Emmanuel Macron and Ursula von der Leyen touched down in Beijing on April 5th to meet with President Xi Jinping, sending a message of unity and a noticeable push from European leaders to engage with China, which has been evident following German Chancellor Olaf Scholz and Spanish PM Pedro Sánchez paying visits in recent months, not to mention President of the European Council, Charles Michel, late last year.
Like them, Mr Macron and Ms von der Leyen are pressing Mr Xi on taking further steps to halt the Ukraine war, while also finessing the increasingly fraught trade relationship between China and the European Union, its biggest trading partner. A momentous occasion all the more notable considering the rarity of State level visits to China a the invitation of President Xi, save for the aforementioned as well as Nguyen Phu Trong, General Secretary of the Communist Party of Vietnam’s Central Committee.
So, what can China & the EU expect from the outcome of these eventful few weeks?
The Two Sessions-Introduction
The National People's Congress, China's top legislature, and the National Committee of the Chinese People's Political Consultative Conference, the country's top political advisory body, completed their annual meetings, known collectively as "Lianghui", or "Two Sessions", in Beijing on March 13th. this year’s meetings were especially consequential because: Xi Jinping secured a third term as President of the People’s Republic of China; the NPC approved a reshuffle of top government positions and a significant reorganization of government functions. Most notably, the new central leadership of the Communist Party of China (CPC) has been elected, as the Party selects the members who will lead the country over the next five years.
The Two Sessions- China’s New Premier
On the domestic front, The Two Sessions heralded in Premier Li Qiang, who will be in charge of the State Council, China’s Cabinet, for the next five years. The new Premier’s ascension is a notable one, as save for the founding premier Zhou Enlai, Li Qiang is the only premier in the history of the People’s Republic of China since 1949 who has not been a vice premier previously.
Li Qiang succeeded Li Keqiang, who confirmed last year that he would be stepping down as premier after reaching his two-term limit. Li Qiang was Shanghai's Communist Party boss, pushing local officials to react quickly to address companies' needs as a means to fire up the local economy. He is highly regarded as the most pro-business politician in China’s inner circle and is believed to have been behind a variety of policy changes, including the abandonment of China's zero-COVID policy last December. A career bureaucrat in some of China's most economically vibrant regions, Li talked up his track record with the private sector, which has been rattled in recent years by a sweeping regulatory clampdown targeting industries including internet platforms and private education.
Making his public debut in a wide-ranging media conference, he stated that China will take measures to boost jobs and urged officials at all levels and to "make friends" with entrepreneurs. However, Li faces significant challenges to accomplish such goals including weak confidence among consumers and private industry, sluggish demand for exports and worsening relations with the United States.
The Two Sessions- Reform in State Agencies
China’s State Council released its restructuring plan, The State Council Institutional Reform Plan, which was approved during the Two Sessions with major changes including the establishment of the National Financial Regulatory Administration to replace the China Banking and Insurance Regulatory Commission, the
reorganization of the Ministry of Science and Technology, and the creation of the National
Data Administration.
In regards to financial upheaval firstly, the new body’s main function will be as a regulator and supervisor and responsible for strengthening supervision, protecting the rights and interests of financial consumers, improving risk management and prevention, and investigating and pursuing legal violations, ultimately the aim is to ensure consolidating regulatory work, helping to standardize regulations and their implementation, and eliminate duplications or redundancies in the system.
The reorganization of the Ministry of Science and Technology follows the government’s priorities in transitioning from traditional industries to becoming a leader in emerging and high-end technologies. With the Ministry obtaining more powers and responsibilities expanding with the aim of expanding the industry’s growth.
The reform targeting financial regulators is rather aggressive, with the new MST focusing on strategic planning, improving. the institutions that support innovation and coordinating resources. The NDA will focus more on
developing data’s role as an important production factor rather than on cybersecurity.
The Two Sessions- Lowest Growth Number in Decades
China announced one of its lowest economic growth targets in decades, aiming for economic growth of "around 5 per cent" for the coming year – its lowest since 1991. It’s important to note that China posted 3 per cent growth last year, missing its stated target of around 5.5 per cent by a wide margin as the economy strained under the impact of strict COVID-19 containment policies and a real estate crisis. Analysts have stated that the target is in line with a global slowdown and is a natural progression as the world's second-largest economy matures.
While post pandemic China will look to growth as a policy priority No.1, growth is estimated to start slow - but build later in the year. Consumption has rebounded since COVID restrictions were lifted but consumer.
confidence is still low. China is striving to kick-start the economy through infrastructure investment which is envisioned to be frontloaded in the first half of the year allowing the stabilization of business confidence for the remainder of the year carrying economic activity towards the second half of the year.
Implications: Businesses can pencil in nominal GDP growth of 7-8% into the business forecasts for 2023, but there is little chance that the economy will outperform.
Von Der Leyen & EU Diplomacy
Ms. von der Leyen was tasked with pressing on further steps to halt the Ukraine war, while also re-establishing trade ties between the European Union and China, its biggest trading partner. President von der Leyen was keen to emphasize the concept of "de-risking", a strategy in which Europe aims at establishing a tough stance in diplomacy, while diversifying its trade sources, and protecting its trade and technology.
With the war in Ukraine firmly in everyone’s minds, China has in recent weeks promoted itself as an alternative peace broker, as evidenced by having its hand in a peace agreement between Saudi Arabia and Iran. While shortly after the culmination of the Two Sessions, President Xi’s conducted a three-day visit to Moscow, which was an opportunity to bolster cooperation in areas of trade and technology, while also releasing its position on a “political solution” to the conflict calling for a ceasefire and peace talks with Ukrainian President Zelensky.
Thus far, this has been the extent of proceedings on this front, there have been reports from some reputable news sources that discussions are underway between the two countries (China & Ukraine) to organize a call between them in order to discuss China’s resolution proposal (a reported 12-point peace plan for the Ukraine crisis that calls on both sides to agree to a gradual de-escalation leading to a comprehensive ceasefire), however at the time of writing, no concrete dates have been either indicated or confirmed by either side for such a call, watch this space.
Macron & Economic Matters
Macron and von der Leyen were right to relaunch, together, an indispensable dialogue with China. By proposing that von der Leyen accompany him to Beijing, Macron wanted to give a European dimension to his visit, representing 450 million people rather than 68 million, especially as trade relations are the responsibility of the European Union.
Macron, for his part, made considerable progress on economic matters on a bi-lateral basis, presiding over the signing of several deals, as he was travelling with a 50-strong business delegation including Airbus, LVMH and nuclear energy producer EDF. In fact, ahead of Macron’s visit, France’s TotalEnergies and China National Offshore Oil Corporation completed Beijing’s first purchase of imported liquefied natural gas to be settled in Chinese yuan through the Shanghai Petroleum and Natural Gas Exchange. Deals were also signed between EDF and China Energy Investment Corporation for offshore wind projects.
Witnessed by both President Xi and Macron, Airbus CEO, Guillaume Faury signed with the Tianjin Free Trade Zone Investment Company Ltd., and Aviation Industry Corporation of China Ltd., an agreement to expand A320 Family final assembly capacity with a second line at its Tianjin site.
Conclusion
While the indications for the rest of 2023 showcase rhetorical support for economic growth, it is still too early to tell if we will see a follow through on policy enforcement. Localization will become a critical issue for multinational companies in the Chinese marketplace moving forward, as they have been for the past few years but now becoming more pronounced mainly due to supply chain restraints, rising costs globally and of course, Geo-political concerns, which permeates international business now like never before.
In terms of EU-China relations, member states are keen to reengage close ties with China, with the EU as a whole is adamant in preserving trade ties. While the visit of Macron and von der Leyen to Beijing did not produce any concrete results between the two regions, it still signified a step in the right direction in terms of people-to-people re-engagement.
The time has come to engage with China and to talk business, global CEOs, representatives from European headquarters, prospective investors and everyone in between should take the initiative to visit China and experience the marketplace for themselves, it should not only be our Heads of State or Presidents. The clear route forward for EU companies is to ‘de-risk’, not ‘decouple’, where Europe can take a tougher stance in diplomacy, diversify its trade sources, and protect its trade and technology while still assessing areas of cooperation and investment.
Edited by: Att. Carlo D’Andrea, Vice President of the European Union Chamber of Commerce in China
