China NPC Meeting: Quality Over Quantity

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China’s National People’s Congress

Source of picture: Rex Features

 

By John Richardson

The focus of next week’s National People’s Congress (NPC) meeting in China – the country’s annual “parliamentary” meeting – is likely to be on the quality rather than the quantity of growth.

This is reflected in the fact that almost half of China’s provinces are setting lower growth targets for 2013, according to this Bloomberg article.

“Fourteen provinces have set lower targets for GDP expansion this year than in 2012 and the other 17 left their goals unchanged,” added Bloomberg, quoting research from Nomura.

Interestingly, a new generation of local political leaders with different objectives appears to be emerging.

“The [provincial] GDP targets may damp previous optimism that China’s economic growth would get a boost this year thanks to the traditional rush of new projects from officials appointed as regional leaders,” added Bloomberg.

“Instead, rising political stars including Hu Chunhua in Guangdong and Sun Zhengcai in Chongqing have set lower goals, supporting incoming President Xi Jinping’s focus on ‘quality and efficiency’ of growth.”

Local leaders were previously measured on how rapidly they could raise growth, regardless of the potential longer term social, environmental and economic damage. The focus was on “jobs, jobs and more jobs”in the dash for export-focused expansion.

China’s shifting demographics, its rising income levels that have changed public expectations, and the end of the babyboomer-driven growth dividend in the West make a new approach essential.

The NPC, which begins on 5 March, will comprise an equal proportion of deputies from urban and rural areas, with more delegates from farming regions and fewer from big cities like Beijing or Shanghai, said the Xinhua wire service report.

The delegate list shows a ‘marked increase’ in the number of front-line workers, migrant workers, farmers, professional and technical personnel and women, added the official government news service.

More ethnic minorities and younger delegates, in their 20s and 30s, as well as fewer party and government officials would be present, continued Xinhua.

The presence at the NPC of more rural residents reflects the major policy agenda of improving the lot of rural residents.

“Reforming rural land laws to better protect farmers’ rights and changing the draconian system of urban residence to give migrants better access to social services are both high on the policy agenda,” said The Wall Street Journal in this article.

“Changes promise to raise households’ share of national income – a crucial component of rebalancing China’s economy toward stronger consumption.

“The reforms will be costly. The State Council’s Development Research Centre estimates turning one rural migrant into an urban citizen, with access to education and subsidised housing, has an upfront cost of 24,000 yuan ($US3857). With about 260 million migrants, the initial price tag for turning just 10 per cent of them into urbanites is 630 billion yuan ($100bn) – equivalent to 1.2% of 2012 gross domestic product.

“At the same time, stronger protection for farmers will make it more difficult for local governments to seize and sell land – a key source of revenue. Land transfers generated 2.7 trillion yuan of revenue for local governments last year, or about a quarter of their total income.”

Another big priority is tackling nothing short of horrific environmental problems that are causing a rising wave of Internet-fuelled public anger. Embarrassingly for the new leaders, the air quality in Beijing once again became chronically bad immediately ahead of the NPC.

The NPC is also expected to underline efforts to tackle a rising bad-debt problem, which is connected to an out-of-control shadow-banking system.

“The Chinese shadow banking system – credit flows beyond traditional bank loans – has quadrupled in size since 2008 to about Rmb20tn ($3.2tn), or 40% of economic output. These flows were crucial in reviving the country’s growth last year,” said the Financial Times, in this article.

The parliamentary meeting is also likely to emphasise the need to, once again, deflate the property bubble.

“China’s property market is rife with speculation – both about rising house prices and about what the new government may do to curb them once it takes office next week,” said Reuters in this article. {The new government formally takes office during the NPC meeting.]

“Asset prices have whipsawed as investors first bet that government-mandated infrastructure spending would boost real estate prices, only to then fret about new measures to cool a market that has seen double-digit annual price rises in cities like Beijing and Shenzhen.

“Markets appear more nervous than the government about the pace of price rises revealed by official January housing data issued last week, and economists at influential state-run think-tanks reckon investors are right to be worried that the new government is preparing to widen a pilot property tax as part of a broader reform of land and fiscal policies.”

All of this points to a major and irreversible policy shift, starting from now.

We have long argued that rebalancing would mean lower growth in the short and medium-term.

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