For years, the annual Two Sessions conference has informed anyone and everyone who matters in the Chinese Communist Party (CCP) where their leadership wants to go. This year’s meeting signaled little direction.
Such lean agendas meant little when China was bounding forward and developing at a startling pace. But this year, the country needs bold direction. It faces huge challenges—a property crisis, export shortfalls, demographic decline, a loss of confidence, and growing hostility in foreign capitals. More than ever, Beijing needs to act and point the way to future action. The failure to address this need at the Two Sessions suggests that China’s leadership has simply run out of ideas.
Perhaps the most telling sign was the absence of the traditional news conference. For decades, every Two Sessions meeting has included a space for China’s leadership to talk to the media. High-level CCP officials are not always forthcoming, but their evasive maneuvers at least pointed publicly to what matters they considered touchy or awkward. This year, the news conference was canceled. One can only conclude that the leadership in Zhongnanhai was worried about being embarrassed.
The authorities did announce a real growth target for 2024, setting it at “around 5 percent.” In one respect, it is a bland offering. It was expected and is very close to last year’s pace. In another respect, however, it confesses failure of a sort. It is, after all, barely more than half the rate of growth that China averaged for years up until 2019. And it is not clear whether China can even increase that rate. The forecasting community has expressed skepticism. Meanwhile, the authorities failed to explain how they intend to achieve the growth.
There was mention of additional infrastructure spending: 1 trillion yuan ($132.9 billion) worth of it. Infrastructure is China’s default form of economic stimulus. However, little was said about how Beijing would finance such spending. Local governments, the usual source of infrastructure financing, face huge debt overhangs, some so severe that they cannot even meet the public service needs of their populations.
True, Beijing said it was ready to take the unusual step of issuing central government debt to finance the spending. But even that raises questions. The central government faces record-high budget deficits. The emphasis on “ultra-long bonds” may hint at how difficult financial matters have become. The long maturities will delay the need to repay the debt and show that Beijing does not expect an immediate return from its spending.
Nor was much said about the property crisis with all the adverse economic and financial ramifications it has brought China. This matter requires bold action, but all that the CCP has mustered so far are the “white lists” in which local governments would compile a list of failing real estate projects for financing that the state-owned banks would review before advancing the funds. But the amounts discussed so far are tiny compared with the need. So far, they constitute barely more than 5 percent of the amount of Evergrande’s initial failure two and half years ago.
Some weeks back, talk emerged about a plan for the CCP to take more than about 30 percent of the housing market. Although such an action would have brought China other severe problems, it would at least have been big enough to disguise the property crisis—nothing as bold or substantive as that got a hearing at the Two Sessions.
Little was said about China’s deflation problem, either. To be sure, deflation is more a symptom than a cause of the country’s challenges, which partly lie with inadequate demand for consumption and capital spending by private businesses. However, China’s leadership did not say much about these problems. The authorities did indicate a target of 3 percent inflation for the year but said nothing about how they planned to achieve it.
The only concrete suggestion was a promise by the People’s Bank of China (PBOC) to cut interest rates more than the bank already has. Given the lack of response to previous rate cuts, this promise hardly seems an adequate answer. In any case, as soon as the conference ended, the PBOC, at its own meeting, decided against another interest rate cut.
Speakers did reference new growth engines, what they called “new productive sources.” But there was little new here. As in past public statements, renewable energy, advanced technology, and electric vehicles led the list. But like so much else offered at the Two Sessions, the talk was entirely aspirational. No one has suggested how the CCP plans to promote these areas beyond what is already being done. Given the sorry state of China’s economy, that is not enough.
If the Two Sessions is supposed to announce a guide to China’s future, this year’s meeting missed its mission, especially given China’s many economic and financial problems. Perhaps more complete and substantive guidance will emerge at next month’s politburo meeting, but given how the Two Sessions went, that seems unlikely. The CCP simply seems to have run out of ideas.
