China's Two Sessions 2024
This article was originally published in Italian in Panorama on 25th Mar 2024.
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/economia/sessioni-cina-2024-sviluppo-sicurezza
China's Two Sessions 2024: Prioritising economic development or security?
The Two Sessions is the annual event consisting of the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC) which sets the tone for the country's economic and political direction. As China continues to assert its global influence, businesses in China and those engaging in the global economy must pay close attention to the implications of China’s recent Two Sessions.
The 2024 Two Sessions underscored the government's commitment to economic stability. Premier Li Qiang announced the economic growth target of “around 5 per cent” during the sessions.[1] It is a world away from the double-digit growth that powered the country for decades as China grapples with the headwinds of weak domestic consumption, high local debt, a troubled real estate sector, exodus of foreign investment, and wavering business confidence. The target remains the same as last year, however without the initial market push of China’s re-opening and with very little economic stimulus announced it is difficult to see how China will reach this ambitious growth target.
Economic stability amidst regulatory uncertainty
For businesses, it is the composition of GDP growth that matters. While China’s economy still has much potential, slower and even negative growth in some sectors is being felt in the wider economy. Addressing the structural challenges impacting China’s economy will require comprehensive reform, especially by moving away from public spending to a consumption-led growth model. However, this appears to be unlikely while the government is focused on economic stability.
To meet its ambitious growth rates, the concerns of foreign businesses need to be eased. In some ways, this was the message the Two Sessions tried to deliver, with announcements of shortening the negative list for cross-border trade in services, relaxing market access restrictions in services and removing investment restrictions in manufacturing.[2]
However, one of the primary concerns for European businesses operating in China continues to be the regulatory environment. While the Two Sessions underscored the Chinese government's commitment to economic stability, regulatory uncertainty remains a significant challenge. As the European Chamber’s Business Confidence Survey 2023 indicated, confidence in the Chinese market hit record lows in several areas, and tangible steps are still needed from the Chinese government to tackle regulatory and market access barriers that prevent European companies from increasing their investments in the country.[3]
New Protectionist Forces?
The concept of ‘New Productive Forces’ made a regular occurrence throughout the Two Sessions. This refers to nurturing technological innovation and emerging industries which can transform China’s future economic landscape, including sector-defining technology such as artificial intelligence, electric vehicles, semiconductors, and renewable energy. It goes hand-in-hand with replacing real estate with manufacturing as the main driver of future growth.[4]
For foreign businesses, China's focus on New Productive Forces could be significant. It presents opportunities for collaboration and partnerships with Chinese companies at the forefront of these technologies. Fostering innovation creates an environment conducive to joint ventures, technology transfers, and knowledge-sharing. Foreign businesses that can contribute expertise, resources, or complementary technologies stand to benefit from accessing China's vast market and the potential for long-term growth.
While the Two Sessions emphasised the importance of such innovation, international businesses face an uphill battle to compete with domestic counterparts. China's focus on bolstering research and development and supporting emerging industries appears to be geared towards strengthening Chinese companies rather than fostering genuine collaboration with foreign entities. Such a focus must not distort market competition, or it risks limiting the opportunities for international businesses to contribute to China's technological advancements.
Economic development versus national security
Throughout the Two Sessions, there were clear signals that China is moving towards technological innovation and manufacturing through New Productive Forces as a way of strengthening China’s self-reliance. As outlined in the European Chamber’s recently published report Riskful Thinking: Navigating the Politics of Economic Security[5], China has a long history of seeking self-reliance. Against the backdrop of increasing geopolitical tensions, it indicates China’s intention to continue seeking international strategic advantages to counter external challenges such as export controls and sanctions.
European businesses in China are growing concerned as economic development and security concerns increasingly intertwine. China’s focus on national security has raised uncertainty for business. The scope of security-related ‘sensitive’ issues appears to be expanding, which makes it more difficult for companies to access information necessary for making investment decisions related to their China operations. As the whole world discusses security, it is important to get the balance right between security concerns and open markets.
Green development: Ripe for EU-China Collaboration
The Two Sessions also gave a glimpse into a potential shift in China's economic landscape, with a greater emphasis on high-tech industries and sustainable development. Businesses that align their strategies with these priorities can position themselves as partners in China's pursuit of innovation-driven growth. They can explore investment opportunities, expand market presence, and contribute to the country's goals in areas such as energy efficiency and low-carbon development. European businesses see great value in exactly this, as China’s speed of innovation requires keeping up to remain competitive.
The fight against climate change is one area where the EU and China’s interests significantly overlap, and where European companies have a wealth of expertise to bring to the China market. Although there were no additional announcements of ambitious green initiatives during the Two Sessions, China is the undisputed global leader in green technology, including batteries and renewable energy like wind and solar. China is indispensable to the EU’s mission of reducing climate change. The country’s green development will be essential in meeting global peaking and carbon neutrality goals. European businesses remain hopeful that they will be able to continue to access and participate in these markets.
Conclusion:
China's 2024 Two Sessions present an insight into the complex landscape foreign businesses engaging with China need to navigate. Despite promises of economic stability and innovation, the reality on the ground continues to paint a picture of uncertainty for foreign enterprises. Regulatory barriers, limited market access, and protectionist policies hinder fair competition and a focus on self-reliance and national security will impede the growth of international businesses. While China continues to be the world's largest market, international players must navigate a complex and often unfavourable environment. As China’s economic direction unfolds, the type of relationship China wants to have with foreign enterprises becomes a growing question. The Two Sessions sends a signal for the year, however, there is still the chance for China to take the route that addresses structural reforms and prioritises economic development over security concerns which would go long way in boosting business confidence this year.
[1] Government of the People's Republic of China. China releases full text of government work report,12 March 2024, https://english.www.gov.cn/news/202403/12/content_WS65f06025c6d0868f4e8e506c.html
[2] Ibid.
[3] European Business in China Business Confidence Survey 2023, European Union Chamber of Commerce in China, 21st June 2023, <https://www.europeanchamber.com.cn/en/publications-archive/1124/Business_Confidence_Survey_2023>
[4] The National Committee of the Chinese People's Political Consultative Conference. "Xi stresses development of new productive forces, high-quality development." 2nd February 2024, <http://en.cppcc.gov.cn/2024-02/02/c_960500.htm>
[5] The European Chamber of Commerce in China, Riskful Thinking: Navigating the Politics of Economic Security, 20th March 2024, <https://www.europeanchamber.com.cn/en/riskful-thinking-report>
Edited by: Lawyer Carlo Diego D'Andrea, Vice President of the European Union Chamber of Commerce in China
