Decoding China: People's Congress of bad timing

Chinese Premier Li Keqiang is an unwavering optimist. When he talks about the economy, he often uses weather metaphors to signal that everything will be fine in the long run. Addressing German businessmen in Berlin last year, he promised them a "rainbow" during the global economic downturn. "When it rains heavily, it can be muddy. But we must not look down," Lee said. "Keep your head up! When the time comes, we will definitely see a rainbow. The economy has an inherent cycle, just like China."

And Lee seems determined to rebuild the world's second largest economy and make it fair, competitive and sustainable.

The global situation, however, is worsening. Countries are increasingly resorting to protectionist policies and global demand is shrinking. Even China's domestic economic indicators are pointing downward. The country's real estate market is in shambles after construction giant Evergrande was forced to close, depriving the nation of its main engine of growth. Domestic demand for goods remains indifferent. Consumers are choosing to save money rather than spend it, and prices are falling. Experts warn of deflation, which, from a nationwide perspective, could be even more dangerous than inflation.

During deflation, people often postpone large purchases, hoping for further price reductions. Investors cut back on investments, unemployment rises. And just before Chinese New Year in February, the CSI 3000 stock market index fell to a five-year low. Beijing responded by replacing the top executives of the stock market watchdog. The index, based on trading in Shanghai and Shenzhen, has recovered slightly since then.

In search of a "rainbow", Li Qiang is now scheduled to present a comprehensive report at an expanded meeting of the National People's Congress to be held next week in Beijing.

In late January, authorities tried to soften the bitter message from nearly half of China's 31 provinces. In an official statement, they said that "13 provinces have raised their growth targets for real percentage GDP growth in 2023." But 13 others have cut their growth targets, and the remaining five hope to maintain the same level of growth as last year, around 5%.

Quo vadis, China?

People are waiting for answers from Prime Minister Li, who has been in office for only a year. He is scheduled to meet with the international press on the last day of the conference in Beijing. The conference will be broadcast live with simultaneous translation into English. It has already been planned down to the smallest detail, including the questions that will be asked. But interest in what Lee has to say remains high.

With the real estate market in crisis, domestic consumption should serve as a bailout, said Ginny Yang, chief economist at London and China Standard Bank ICBS. "Consumer confidence in China declined again in the last quarter of 2023," she said at a conference in Frankfurt. "A revival in consumption remains key to growth."

Billions flow from Germany Chinese policymakers seem to be looking at another way to stimulate growth - by attracting more money from abroad through foreign direct investment (FDI). Even today, China needs foreign capital and know-how, especially in less developed provinces. The German economy plays a major role in this regard. According to the Bundesbank, German businesses set a record last year by investing nearly 12 billion euros ($13 billion) through FDI in China.

In December, Beijing unilaterally eliminated visa requirements for citizens of Germany and several other EU countries who plan to stay in China for 15 days or less. Visa liberalization for Germany, France, the Netherlands and Italy will remain in place until the end of 2024. In January, Irish and Swiss nationals were added to the list.

Jens Eskelund, head of the European Union Chamber of Commerce in China, praised the liberalization as a "concrete and practical improvement" for investors. "China is truly open for business," Eskelund told the German business newspaper Handelsblatt.

“Decoding China” is a series of programs by KPD that analyzes China's positions and arguments on current international issues from a critical German and European perspective.