'Growth Amid Stability' China Two Sessions, Expecting Structural Improvement with Speed Adjustment

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[Asia Economy Reporter Junho Hwang] As China’s largest political event, the Two Sessions (the CPPCC on the 4th and the NPC on the 5th) approaches, expectations for the Chinese stock market are rising. The key issue is whether the continuous economic stimulus policy to guide a soft landing of the economy will be maintained. In this regard, attention is expected to focus on the economic growth target, the easing of Qingling (zero-COVID policy), development strategies such as growth-driving policies, and other matters including the appointment of the Vice Premier.

First, the economic management goal of the Two Sessions is expected to be the realization of "growth with stability." Last December’s Central Economic Work Conference and the local Two Sessions held ahead of the national Two Sessions also emphasized "stable growth" as a core keyword. However, at the local Two Sessions, due to the triple difficulties of demand contraction, supply shocks, and weakened expectations, it was anticipated that maintaining a normal economic growth pace would be challenging, leading to a downward revision of the economic growth forecast compared to the previous year.

Accordingly, the economic growth target to be presented at this year’s Two Sessions is expected to be around 5% or higher. This is forecasted to be 1 percentage point lower than last year’s target of 6% or higher. The view that the focus will shift from quantitative growth to improving the economic structure adds credibility to this forecast. It is about finding a balance between "common prosperity" and "growth with stability," which President Xi Jinping is advocating ahead of his third term. Considering the declining growth rate since the first quarter of last year (18.3%) to 4.0% in the fourth quarter, it is highly likely that the target will be set somewhere within the range suggested by the Chinese Academy of Social Sciences (5.3%) and Beijing city (5%). Notably, since 2014, the growth targets presented at the Two Sessions have matched the targets proposed by Beijing city, which is worth noting.

It is also important to observe whether there is a willingness to ease Qingling. The Chinese government strengthened Qingling last year to host the Beijing Winter Olympics. Qingling is a policy that locks down an entire area when COVID-19 cases are confirmed. Changes in the Chinese government’s policy regarding this are expected to be observed after the Beijing Winter Paralympics, which conclude on the 13th. However, it should be noted that ahead of the 20th National Congress of the Communist Party of China (hereafter the 20th Party Congress) scheduled for this fall, there is a possibility that the government may tolerate a slowdown in growth despite the burden of COVID-19 prevention failures.

As for growth policies, continuing from last year, ▲strengthening the dual circulation based on the huge domestic market, ▲industrial upgrading and digital economy for industrial structure transformation and independent innovation, which were selected as key sectors at this year’s local Two Sessions, ▲the cultivation of small and medium-sized enterprises as a new innovation framework for local governments through "Zhengzhong Teksin" (specialized, refined, distinctive, and innovative enterprises), ▲and the dual carbon goals emphasizing carbon peaking and carbon neutrality as a core focus this year ▲ are expected to emerge.

Another area to watch at the Two Sessions is the structure related to the appointment of the next Premier, as current Premier Li Keqiang’s term expires in March next year. It will be possible to gauge the power structure accompanying President Xi Jinping’s long-term rule after the 20th Party Congress by observing whether Vice Premier Hu Chunhua, who is under 68 and currently holds two vice-premier positions, will be appointed as the next Premier or if a new figure will emerge.

Moon Namjung, a researcher at Daishin Securities, said, "This year, the Chinese stock market may rise above last year’s level, but ahead of the 20th Party Congress, the promotion of common prosperity for Xi Jinping’s third term will continue," adding, "the economic growth rate in the 5% range this year, which is below the average pre-pandemic growth rate of 6.6% (YoY) since 2016, will dampen economic sentiment and limit stock market gains." However, he predicted, "Trading approaches in the first and fourth quarters seem valid based on policy expectations ahead of this month’s Two Sessions and the Central Economic Work Conference in December."

This content was produced with the assistance of AI translation services.