[The Editors' Verdict] China's Two Sessions: A Barometer for the Post-COVID Era

The annual Chinese Two Sessions, usually held in early March, opened on the 21st this year, about two months late. The Chinese Two Sessions always attract attention, but this time is even more special. This is because, with the 100th anniversary of the Communist Party's founding just a year away, the growth rate has plummeted to a historic low (minus 6.8% in Q1), and US-China tensions have rapidly reignited, making the Chinese government's countermeasures a matter of intense interest.

The main points of focus on site cover all areas including politics, economy, and society: COVID-19 control, growth targets and measures, poverty alleviation, the comprehensive construction of a Xiaokang society (an ideal society where ordinary people live prosperously), the draft civil code, and responses to the external environment. However, personally, I believe the economy is the core of the core this time.

First, we need to watch whether a target growth rate will be presented. The Chinese government has announced either a specific growth rate target or a range (like last year's 6.0?6.5%) at the Two Sessions every year. But this year, there is a possibility that they might widen the range as in 1995's 8?9% or not present a range at all. The Chinese government has previously announced growth rates necessary for entering the Xiaokang society by 2021, which implies that this year a mid-5% growth rate should be achieved. Given the minus 6.8% in Q1, achieving an average annual growth rate in the mid-5% range would require growth of 8?9% from Q2 onward, which is practically impossible. The general assessment is that growth will be around 3% at best. Therefore, announcing a growth rate could spark unnecessary controversy that "this is insufficient for entering the Xiaokang society."

Second, rather than the target growth rate, the announcement of economic recovery measures that can gauge how quickly the economy will rebound from the worst-ever growth rate is a key point to watch. How large a stimulus package will be announced? Although exact details are unknown, there are talks of fiscal policy increasing the fiscal deficit to over 3.5% of GDP, issuing special bonds for the first time in 13 years to supply 500 billion to 1 trillion yuan (about 170 trillion won), increasing local government bonds issuance by more than 1 trillion yuan compared to last year to 3.5 trillion yuan (about 600 trillion won), and significantly easing monetary policy to inject up to 4.5% of GDP (900 trillion won). The People's Bank of China's monetary policy implementation report released on the 10th removed the phrase "no large-scale flood irrigation policy (大水漫灌)," and local bonds have been issued up to 90% (1.6 trillion yuan) of last year's issuance as of mid-last month, even without budget approval. The market seems to expect a super stimulus package more than twice the 4 trillion yuan during the Lehman crisis.

Third, there may be an emphasis on "comprehensive poverty alleviation," another aspect of the Xiaokang society. From this perspective, rural income increase policies are attracting attention. If rural incomes rise, it would resolve the "poverty alleviation and income inequality" that have been shadows of China's high growth, earning applause. Moreover, it would also help increase consumption, a key pillar of growth, making it a twofold benefit for the Chinese government. Tencent's Ma Huateng, who always proposes ideas at the Two Sessions, is said to present a new plan this time as well: a "rural revitalization plan through digital technology." This involves actively enhancing productivity through rural digitalization using O2O (online-to-offline) methods, reducing income gaps between urban and rural areas, and preparing a comprehensive plan for qualitative rural development and revitalization.

Fourth, there is interest in whether a "new infrastructure plan," part of the post-COVID-19 economic structural transformation policy, will be announced. Unlike during the Lehman crisis, which focused on analog infrastructure such as railways and roads, it is highly likely that plans for building digital infrastructure such as 5G (5th generation mobile communication), artificial intelligence, big data centers, and the Internet of Things will be announced. There are talks of an investment plan of about 10 trillion yuan (1,730 trillion won) by 2025. Post-COVID, non-face-to-face and digital production and consumption are the trends. Since large-scale investment is necessary anyway, the Chinese government’s stance is to focus investment on future infrastructure.