By: H+K China’s Government and Public Affairs Team
On the opening day of the National People’s Congress (NPC), Chinese Premier Li Keqiang delivered the annual government work report, the centerpiece document released during the assembly of China’s national legislature. H+K Strategies has prepared below some of the most pertinent takeaways for our clients, covering China’s economic priorities, innovation, market access, Sino-U.S. relations, and more.
As the NPC continues to unfold in the coming days, we will provide fuller assessments of the work report’s implications as well as coverage of the constitutional amendments and the unveiling of China’s new government leadership line-up from March 17-19th.
A slightly softer growth target for 2018
China’s annual economic growth target was set at “around 6.5%.” The more modest target further underlined the government’s intensified drive to ensure financial stability and achieve higher quality growth.
Marching into the “three critical battles”
The Chinese leadership reaffirmed its commitment to ensuring success in the “three critical battles” where Beijing has declared that it needs to dedicate its attention and resources to winning in the next three years, namely preventing and defusing major risks, particularly financial vulnerabilities, alleviating poverty, and safeguarding the environment. Having been first laid out at China’s most important annual economic meeting in December, these broad policy priorities lie at the core of the inaugural roadmap for the Chinese economy in President Xi’s second five-year term.
The premier’s work report also said that China would “adopt targeted approaches and specific measures, draw up timetables and roadmaps, and set well-defined priorities” for these three battles. Companies should carefully monitor the detailed plans as they emerge and prepare to don their corporate battle gear in support. Demonstrating how they are helping authorities to achieve their targets in these major priority areas, in particular with regards to poverty alleviation and environmental protection, will likely generate significant goodwill for businesses among their key government stakeholders.
Accelerating China’s emergence as a “country of innovators”
The leadership vowed to move faster to support China’s transformation into “a country of innovators,” outlining its vision of creating a vast supportive ecosystem defined by collaboration between companies, universities, research institutes, and consumers. The work report touted China as being “home to the biggest pool of human resources and talent in the world,” which it identified as the “greatest gold mine” for innovation.
In recent years, the ascent of the Chinese tech economy has taken many by surprise – not due to its emergence, which has long been anticipated, but because of the breathtaking pace with which it has sprung to life. It may continue to lag behind the West in many respects, but a formidable new rival is rapidly taking shape. China is now leading the global charge on innovation in a number of areas, including mobile payments, social media, Internet finance, and the sharing economy. Its tech titans have scaled the heights of the world’s most valuable companies, with Alibaba and Tencent now numbered in the top 10. And China’s venture capital market today rivals that of the U.S. in size.
With the stage set for “Created in China” to materialize into a defining feature of the new era, the world’s dominant tech hubs, particularly Silicon Valley, need to prepare themselves not only for much greater competition in the years to come but also the paving of a two-way innovation highway that will carry with it huge opportunities for mutually beneficial collaboration.
Pushing ahead with coordinated regional development
The leadership promised to continue moving forward with China’s coordinated regional development strategy, particularly flagship projects such as the Beijing-Tianjin-Hebei regional integration initiative, the Xiongan New Area, and the Yangtze Economic Belt. Most noteworthy, the government announced that it will unveil the development plan for the Guangdong-Hong Kong-Macau Greater Bay Area, a concept focused on driving greater economic integration throughout the southern region that was elevated to a national strategy at last year’s NPC.
Promises for continued market opening
In terms of market liberalization, the work report vowed to promote “steady growth in foreign investment” and continue opening up China’s markets, including providing expanded access to sectors including telecoms, healthcare, education, and new energy vehicles as well as lifting foreign ownership caps on banks, brokerage houses, and fund management firms, echoing a promise made by Beijing during President Trump’s “state visit-plus” to China in November.
In addition, the government announced that it will provide overseas investors with tax deferrals for profits reinvested in China, a move which was likely aimed at discouraging any capital flight following the Trump administration’s major overhaul of the U.S. tax code late last year. Such official moves and rhetoric were encouraging, but, as always, the actual impact will depend on how quickly and fully the headline pledges are carried out.
Girding for stormier trade relations with Washington
Cautioning that “protectionism is mounting” in the world, the government reiterated China’s commitment to “promoting economic globalization and protecting free trade,” continuing the country’s rebranding as a new global leader as the Trump administration retrenches with its “America First strategy.” The work report also included what was likely a thinly veiled warning to the U.S., emphasizing that, “China calls for trade disputes to be settled through discussion as equals, opposes trade protectionism, and will resolutely safeguard its lawful rights.”
This came in the context of Trump’s intensifying efforts in 2018 to start rebalancing U.S. trade with China via tariffs – so far directed at imported solar panels, steel, and aluminum – as well as the recent visit by Liu He, President Xi’s top economic adviser, to Washington, D.C., an outing which did not appear to make any significant headway towards defusing trade tensions. However, it is hard to imagine either side allowing even their most contentious trade and investment issues to dramatically upend an economic union in which both have so much invested. In 2018, light trade skirmishes are far more likely to define Sino-U.S. relations than a full-blown brawl.