China's ruling party faces tough choices about how to stimulate slowing economy
China is looking for ways to boost its slowing economy and fix its property market as its annual congress gets underway in Beijing.
The focus of the congress will be on building confidence in China's economy, which has been slowing down. However, it's not clear how the ruling Communist Party can steer towards stronger, long-term growth.
This is because China's workforce is getting older, relations with Washington are tense, and the housing construction sector - a key part of the economy - is in crisis. Hopes for a strong recovery led by consumers after strict virus controls ended in late 2022 have not materialised.
Local governments are stuck with trillions of dollars of debt and foreign companies invested about 80% less in China last year. More than 5,000 leaders from all over China are meeting in Beijing for the biggest political events of the year, but the mood on the streets and in financial markets is not good.
This is different to the official messages as the country celebrates 75 years since the People's Republic was founded in 1949. "We are confident of consolidating and enhancing the recovering and growing trend of the economy," the party newspaper People's Daily said in a commentary on Saturday. "We are fully capable of turning pressure into a driving force, accumulating and turning advantages into victorious trends and steering the advance of the great ship of the economy while braving wind and waves.'
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Videographer Wang Tao, 41, is finding it tough to get a job in China where companies usually don't hire people over 35. He said, "At first I thought it was difficult only for older people like me, but later I found out that many young people ... are having a hard time finding work," and added, "The general employment situation is grave."
The National People's Congress in China is a major event where leaders show what they plan to do, especially about jobs and the economy. China's leader, Xi Jinping will be in charge of the meeting. Premier Li Qiang is going to tell everyone the goal for how much China's economy should grow when the meeting starts on Tuesday in the Great Hall of the People. The goal might be around 5%, just like last year's growth.
But some economic forecasters say it will grow less than 5%. Last year, it only grew 3%, which was almost the lowest since the 1970s. Li will also talk about plans for making China's development better and modernizing the country, according to Xinhua News Agency.
Many people in China are hoping the government will spend more money, according to Logan Wright from Rhodium Group, an independent research company. "Everyone will be watching for whether there is significant fiscal stimulus on offer," said Wright. But he also mentioned that spending money isn't enough. "The time to solve the short-term problems and prevent them from becoming long-term problems is now. So what is the plan? " he asked.
The property market problems began when the government stopped real estate developers from borrowing too much money. Since then, lots of these companies have not been able to pay their debts. The biggest one, Country Garden, might have to sell everything it owns. Another big company, China Evergrande, owes billions of pounds and is being sold off too.
Less money is coming in from taxes on selling houses and flats, which is bad for the banks. To help, the central bank has made it cheaper to borrow money for a long time. Many cities are making it easier to buy and sell property after they tried to stop prices from going too high before. Also, the government has approved lending for about 6,000 property projects.
"The property market has been such a significant source of China's growth and now it has gone into reverse," Wright explained. He did say that there are signs things might be getting a bit better. If you look at how China is responding to this, it is indicative of a more severe slowdown than what the official data would suggest."
The pandemic has worsened problems, with virus controls leading to lengthy city lockdowns and huge factory backlogs. Now, China is battling to prevent a potentially harmful cycle of deflation, or constantly dropping prices.
In 2023, exports, a key growth driver, fell for the first time in seven years, even though the U. S. economy didn't go into recession as predicted. Despite official signs that China's long-standing crackdowns on tech companies over anti-monopoly and data security have ended, business owners are nervous. Many small businesses say they can't get paid what they're owed, and bankruptcies have skyrocketed.
At the same time, global firms have been moving investments to countries like India and Vietnam to reduce risks from China-U. S. political tensions and the party's stricter domestic controls, sometimes raiding the Chinese offices of foreign businesses.
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"The system is not that transparent and the lack of transparency creates a lot of uncertainty," said James Zimmerman, a lawyer and former head of the American Chamber of Commerce in Beijing. This is especially true when it comes to national security issues, he said, where just doing research for due diligence can land people in jail.
Xi's chat with President Joe Biden and U. S.business bigwigs at a regional meeting in San Francisco in September sent the message that "China is open for business," Zimmerman said, "but there was nothing in there in his presentation that got to specifics about what reform and what type of changes are going to happen, you know, to give people the comfort level."
China's workforce has been getting smaller for over ten years, putting strain on an economy that still depends on industries that need lots of workers. With house prices dropping and stock prices not doing well, even families who are usually well-off are saving money instead of spending it.
"Spending power is worse than before, probably because we didn't make money during the pandemic," said Jiang Yingjie, a salesperson in Beijing. One plan could be to put more national wealth into workers' pockets, suggests Michael Pettis, a top expert on the Chinese economy and professor at Beijing University.
"The problem in China has been the same problem for the last 10 years ... and that is that domestic demand driven by consumption is very weak," he said. At the same time, too much investment in building is not giving good returns. So this year is really a year in which they try to figure those imbalances out. They want to raise consumption. But it's very hard to do that because that involves a major redistribution of income," Pettis said.
Fears are growing in the U. S. and Europe that China might start exporting more to deal with its economic problems. This comes as Chinese banks give more money to companies that make products like electric cars and solar panels. The issue is a big part of discussions between Beijing and Washington. "If you manufacture more and more and you don't consume it, then you need trade surpluses to absorb it," Pettis explained.
Some places in China are trying something different by making housing cheaper and using empty flats. This could help with the gap between rich and poor and let people spend more money. "I think it has to be a combination of short and longer-term measures.," said Louis Kuijs, who knows a lot about Asia's economy for S&P Global. "I think anything that can be done to pump momentum into the economy will be helpful."
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