China will power economic development in 2020 – New potential opportunities for foreign investors
China plans to redouble its efforts to minimize the losses resulting
from the COVID-19 pandemic and fulfill the targets and tasks for
economic and social development this year. In its 2020 Government
Work Report, the Chinese authorities outlined measures to deliver
important reforms and, with them, potential opportunities, to local
and international businesses operating in the country and around the world.
Each year, the Government Work Report is presented to Chinese policymakers at the “two sessions” – the biggest event in China’s political calendar. Around 3,000 national legislators and 2,200 national political advisers travel to Beijing to review central government work reports and budgets, among other topics.
This is the first time since 2002 that the report does not include any specific targets for economic growth. However, Chinese Premier Li Keqiang said that China is still eyeing a positive growth rate this year.
The 2020 Government Work Report reviews China’s development in 2019 and sets out, at a high-level, China’s economic and social development agenda for the year ahead. This document is a must-read for foreign investors who wish to have a better understanding of China’s short- and long-term vision.
China decided not to set a 2020 growth target after its economy shrank 6.8 per cent in the first quarter due to the impact of the coronavirus but may resume this practice in the future. Liu Shijin, the deputy director of the economic committee of the Chinese People’s Political Consultative Conference, the country’s top political advisory body, said that the government could instead just set targets for employment and a series of requirements for price, risk control and individual income.
China abandoned annual economic growth rates for three straight years from 2000 to 2002 following the Asian financial crisis. Though the 2020 report did not establish a GDP growth rate, it set several macroeconomic goals, aiming to counteract the difficulties faced since the pandemic became a global health crisis.
Originally, China had planned to double its GDP in 2020 from 2010, which would require the economy to grow by at least 5.6 per cent this year, although the Chinese government has yet to announce a revision of the target.
Some of the most significant macroeconomic goals established in the 2020 Government Work Report include the creation of over 9 million new urban jobs, maintaining a surveyed urban unemployment rate of around 6% and a registered urban unemployment rate of around 5.5% and adopting all possible measures to promote employment.
The country will pursue a more proactive and impactful fiscal policy, Premier Li said. The deficit-to-GDP ratio this year is projected at more than 3.6 percent, with a deficit increase of one trillion yuan over last year.
China will provide RMB 2 trillion (of which RMB 1 trillion yuan will be raised through the issuance of COVID-19 government bonds) to local governments to facilitate employment, cut taxes and government fees, reduce rental payments and interest payments, and increase consumption and investment.
The country plans to use a variety of monetary policy tools (e.g., required reserve ratio reductions, interest rate cuts and re-lending) to grow the money supply and aggregate financing, as well as to keep the RMB exchange rate at a generally stable and balanced level, and ensure businesses can obtain loans more easily.
Maintaining overall economic and social stability, and working towards the elimination of poverty are also major goals for 2020.
To help businesses get more orders and keep their employees, China will take measures to increase the lines of credit, extend the coverage of export credit insurance, lower compliance costs for imports and exports and promote domestic products initially bound for export.
According to the latest Government Work Report, China is committed to opening its doors wider to the world, keeping its industrial and supply chains stable and making opening-up a catalyst for reform and development.
Some of the actions that will be implemented to attain this goal include formulating a negative list for cross-border trade in services, granting greater autonomy to pilot free trade zones in terms of reform and opening-up, and accelerating the growth of cross-border e-commerce and other innovative businesses. The report also addressed the importance of fostering a market environment in which all companies, Chinese and foreign, are treated as equals and engage in fair competition.
Besides further opening the domestic economy, the 2020 Government Work Report favors international cooperation by focusing on quality market principles and international rules in jointly pursuing Belt and Road projects for mutually beneficial outcomes and promoting the healthy development of Chinese outbound investments.
Regarding regional and international trade relations, China will work towards the signing of the Regional Comprehensive Economic Partnership, advance free trade negotiations with Japan and South Korea and move forward in the implementation of the China-U.S. Phase One Trade Deal.
The aftermath of COVID-19 has tested the resilience of the Chinese economy. In this regard, the government plans to deliver more than RMB 2.5 trillion of additional cuts to taxes and government fees in 2020, and expand to March 2021 the policy of allowing micro, small, and medium-sized businesses to postpone principal and interest payments on their loans.
Banks will be encouraged to increase lending to micro and small businesses at lower interest rates.
Private businesses will have equal access to factors of production and will receive support to participate in major projects on an equal footing. Relevant regulations will be reviewed to abolish those that unfairly differentiate businesses according to their form of ownership (e.g., private or government-owned).
Regarding technology and the digital economy, the 2020 Government Work Report includes measures to increase lending to manufacturers and promoting the industrial internet, as well as smart manufacturing, and introduces new policies to support science and technology, innovation, e-commerce, online services, the digital economy and 5G implementation.
In the report, the Chinese government seeks to encourage businesses to increase funding in research and development and promises to strengthen intellectual property protection, as well as support venture capital investments and loan guarantees for start-ups.
To strengthen consumption, authorities will promote the development of new infrastructure (e.g., those relating to 5G networks, charging facilities for new-energy) to support the roll-out of e-commerce and express delivery services in rural areas.
Premier Li underscored the goal of winning the fight against poverty and highlighted the work to bolster agricultural production, vowing to create more channels for rural residents to find employment and increase their incomes.
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