BusinessCircle1704p052By Elizabeth Winkelman / Evan Zhang / Amber Yang

China just held it’s 2017 National People’s Congress. Each spring, Beijing becomes the hub for the 3000 Chinese parliamentarians attending the National People’s Congress. They gather for two weeks in the nation’s capital to approve legislation for China’s future.

There are 2 major Chinese government sessions (两会)that take place each March: first, the National People’s Congress (NPC) at the Great Hall of the People, in front of Tiananmen Square – a place symbolic for Chinese political power since the time of the Qing Dynasty. Beijing’s security tightens and the focus of the city turns to politics. Next, around 2000 delegates who are not necessarily Communist Party members, those who may be influencers or from other political parties including intellectuals, entrepreneurs, celebrities attend the Chinese People’s Political Consultative Conference (CPPCC), an advisory body for the Communist Party.

Why is the Congress significant for Australia?

The National People’s Congress is China’s legislature and is the highest tier of state power. It is responsible for electing the Chairperson, currently held by Xi Jinping and for approving the appointment of the Premier of the State Council, held by Li Keqiang both key roles within China’s politburo. Congress is considered to be the most important annual meeting for the Chinese government, where policy priorities are outlined for the year ahead and new legislation passed. Some commentators call the Congress “rubber stamp parliament”, more a prominent display of Chinese-style leadership and top-down decisionmaking where all legislation is agreed upon by the 3000-strong delegates. (In other words, legislation is not debated in these particular sessions). Statements by officials, given at the press conferences during the Congress are dissected by China observers to understand the major policies of the Communist Party. Their speeches give insights into China’s strategic direction for the year ahead.

Key areas affecting Australia

China’s Economic Growth

Last month, Julie Bishop, Australia’s Minister for Foreign Affairs and Wang Yi, China’s Foreign Minister met in Canberra for the fourth round of China Australia Diplomatic and Strategic Dialogue discussions. Minister Bishop stated that Australia’s relationship with China could not be stronger, while Minister Wang’s spokesperson Lu Kang said: “Visiting Australia and New Zealand at the beginning of Chinese New Year highlights the importance China gives to growing relations with these two countries”. The long-term effect is that China’s rising political influence on Australia is arguably beginning to overshadow even that of the US.

Australia is China’s sixth largest trading partner and China has been Australia’s largest trading partner since 2007. Chinese official speeches and policy directions from the National People’s Congress influence the economic outlook between Australia and China. Australia cannot afford to underestimate the growing significance of China and the effect of Chinese
Community Party policy on Australia. Chinese foreign direct investment into Australia surged by 56% in 2016 compared with 2015 to $4.8 billion while China’s GDP growth of 6.7% last year is the lowest it has been since 1990. This is due to the severe slowdown in manufacturing and construction – once primary economic growth drivers. According to the State Information Center (SIC), a Chinese State-run Think Tank, China’s economic growth could slow to 6.5% this year. The International Monetary Fund (IMF) also adjusted its economic forecast for China’s growth to 6.5% in January, 0.3% higher than its October forecast last year.

In his 2017 Congress speech, Premier Li Keqiang confirmed this figure. He stated that China aims to deliver economic growth of around 6.5% in 2017, compared with last year’s goal of 6.5% to 7%. The global economy still shows no signs of recovery and meanwhile, the Trump Administration is looking to increase tariffs on Chinese merchandise as a way of boosting US local manufacturing. Considering the sheer size of China, the world’s second largest economy, the adjusted 6.5% increase in GDP is still an ambitious target to achieve.

Premier Li added that China had managed to remain at a relatively high speed of economic growth in spite of the global economy reaching its lowest rate of growth in nearly thirty years.“Almost every year I have heard predictions of the Chinese economy having a hard landing,” Li said at a news conference at the end of this year’s Congress session. “But I believe that our economic performance in the past several years should suffice to put a stop to such prophesies.”

Li continued “China’s financial system is generally stable and there are no systemic risks. We still have a good reserve of policy options and instruments at our disposal.” Li emphasised the achievements China had China’s Economic Growth
Key areas affecting Australia made in the past four years, with annual headline growth differences narrower than 1% point, thanks to “the leadership of the Communist Party’s Central Committee with Comrade Xi Jinping at the core”.

China, the world’s second-largest economy, is in a spotlight as the government works to maneuver a difficult transition, moving away from growth led by manufacturing and exports, and toward the service sectors. Faced with the prospect of a sluggish global economy, China’s economic aims are ambitious to say the least given the nation’s growing amount of debt. Official economic targets may be set by the Central Party, but it is local governments have to find the means of borrowing from financial institutions to stimulate economic activity. Many local governments are thought to be in debt from the borrowing of US $570 billion economic stimulus package that was put together during the 2008 global financial crisis under Premier Wen Jiabao.

• Iron ore and Coal
With the new GDP growth target boosted by infrastructure spending, private sector investment and business tax cuts, the Australian economy can anticipate a stable demand from China on iron ore and coal. Premier Li’s confirmation is a boost for Australian iron ore and coal exporters. The iron ore price has nearly doubled since June last year to be trading above $US87 a tonne, and the coal price is well above its depressed level in 2015.

• Education
International education has been Victoria’s largest services export industry for over a decade. Foreign enrolments in Australian secondary schools rose 14% last year to 23,300 students, more than half of whom come from China, according to official Australian government figures.

Benefiting from greater levels of disposable income, Chinese parents are sending their children to study in Australia for a prestigious education. There are myriad reasons for this trend: economic competition, the need for a healthier lifestyle and a better working environment. China’s middle class is expected to reach 500 million people within the next coming decade
and it seems clear that China’s growing consumer classes will continue to buy in to the Australian education system in the future.

One Belt One Road

The One Belt One Road Initiative, launched in 2013 by the Chinese Government, aims to strengthen multilateral partnerships in the fields of infrastructure, energy, finance and education. The overall goal is to create substantial development among the countries along the Belt and Road. The ‘Belt’ initiative calls for the integration of the Eurasian land
mass into a cohesive economic area. For the maritime ‘Road’, China’s development of ports and hubs across the Indo-Pacific is key. China’s ambitions for the One Belt One Road initiative are breathtaking. There is a New Silk Road Fund of US$40 billion (A$52 billion) plus the support of US$100 billion worth of lending from the Asian Infrastructure Investment Bank. Although Australia is far away from the region, President Xi Jinping has stated that developing Northern Australia has enormous potential to link with the Belt and Road Initiative. Inclusion would give greater legitimacy and priority to Australian investment proposals within the Chinese system. A report by the Australia-China One Belt One Road Initiative (ACOBORI) in June last year specifically analysed potential Belt and Road project opportunities for Australian companies.

At this year’s Congress, the One Belt One Road Initiative was mentioned repeatedly by Premier Li. Premier Li stressed the urgency of developing international cooperation, exporting technology and services and intensifying communication within the education, culture, and travel industries. The government’s working report by Premier Li sheds new light on investment conditions for Australian companies and investors. This is because the implementation of the initiative stimulates the demand for substantial resources in sectors in which Australia has world-renowned strengths – energy, education, advanced manufacture and financial services.

While the Trump Administration is leading the US into increasingly nationalistic trade policies, the One Belt One Road Initiative places China at the forefront of globalisation. Since it launched in 2013, China had already invested more than 50 billion US dollars in the countries along the One Belt One Road.

As Premier Li pointed out, China is now facing a more complicated situation domestically and internationally. “With the rise of antiglobalisation and protectionism, policy trends of major economies and spillover effects have been variable. There’s also a number of uncertainties increasing.” Premier Li said that China would push for the advancement of globalisation and oppose protectionism in any form, actively participating into the process of global governance thus leading to economic globalisation to a more generous, beneficial and impartial direction of development.

Li Wei, a Sydney-based China economist with Commonwealth Bank of Australia, said Li had been “assiduous” and had done what he could within his power, including cutting red tape. “But the implementation [of policy] may not have been as good as he had expected,” Li Wei said. The Premier’s biggest challenges were to remove government intervention in economic activity and to squeeze room for “rent-seeking”.

While growth has stayed on track, concerns about the country’s economic health remain, especially about its fragile financial system and local government debt. The yuan is also under pressure from the threat of capital outflows. China was batting above average in terms of some international indicators, including a government fiscal deficit to GDP ratio of less than 3%, and a capital adequacy ratio of 13% and a provision coverage ratio
of 176% for commercial banks. Li said the stable growth was achieved without sacrificing sustainability.

Tackling employment problems

Premier Li has said that the biggest challenge to China was not trade war, not debt crisis or even air pollution—but employment and how to create more than 13 million new jobs while retaining rapid economic growth. And this is just the government employment objective for 2017.

Li pointed out that just this year, there are 7.95 million Chinese university graduates and 5 million secondary vocational graduates, hitting a new record high. Due to the lack of higher paid, white-collar occupations, China has to open up its service industry to tackle the issue and continue to push forward reforms in service industries, welcoming more private capital into banking, communication, energy, transportation and the medical industry. Opening stock, bond and currency market to foreign investors is another way of increasing job opportunities.

Urbanisation is regarded as a key engine for China’s economic growth in the coming decade. As stated by three delegates attending this month’s parliamentary sessions in Beijing, China’s urbanisation drive should focus on providing services and creating jobs instead of building up new skyscrapers. “The most important part of urbanisation is creating jobs,” Wang Heling, from Anhui province, was quoted as saying. The government has set a target to increase the “urbanisation rate” of 60% of China’s total population by 2020.

Air pollution in China

Concerns about environmental problems were also stressed at Congress. Premier Li promised to step up the battle against deadly smog, telling Congress: “We will make our skies blue again.” China’s cities have become synonymous with choking air pollution in recent years, which is blamed for up to 1 million premature deaths a year. Li admitted that China was now
facing a serious environmental crisis that had left citizens with major health issues and a deterioration in their quality of life. China has unveiled a series of smog-busting measures including cutting coal use, upgrading coal-fired power plants, slashing vehicle emissions, encouraging the use of cleanenergy cars and punishing government officials who ignore environmental crimes or air pollution. “Key sources” of industrial pollutants would be placed under 24-hour online monitoring in an effort to cut emissions. The Beijing government aims to keep PM2.5 levels below 60 micrograms per cubic metre this year, it also vowed to make 300,000 old motor vehicles obsolete and to bring more areas in the city under stricter regulation to achieve its “zero coal emissions” target.

Chen Jining, Minister of Environmental Protection, said during the Congress that data on the levels of PM2.5, tiny hazardous particulate matter, show the air quality in regions such as the Yangtze River Delta and the Pearl River Delta has improved by at least 20% over the past three years. Meanwhile, Premier Li vowed that levels of PM2.5 would fall over this coming year but did not mention a specific target. “Tackling smog is down to every last one of us, and success depends on action and commitment. As long as the whole of our society keeps trying we will have more and more blue skies with each passing year,” he said.

Future China Engagement

After the National People’s Congress, Premier Li is leading a large Chinese business delegation to Australia, with the aim of strengthening economic ties and extending the free trade agreement. It is expected that Prime Minister Turnbull will be announcing the next stage of the China free trade deal with Australia.

China’s economy may no longer be expanding with double-digit growth, but the economy is still gigantic — worth about $11 trillion last year. “Don’t worry about good old China,” wrote Carl Weinberg of High Frequency Economics, “Its growth rate is still among the fastest in the G20, and China contributes more to global GDP growth than any other country by a quantum.”