A perfect storm is swirling around China’s economy.
In a 55-minute speech, Premier Li Keqiang warned of the “arduous” challenges ahead during his annual address to the National People’s Congress in Beijing’s Great Hall of the People.
“We must make economic stability our top priority,” he told delegates of China’s rubber-stamp parliament at the weekend.
“The world economic recovery lacks drive, and commodity prices remain high and are prone to fluctuation. All of this is making our external environment increasingly volatile, grave and uncertain,” he said.
Beijing is facing economic headwinds amid rising geopolitical tension with the United States and its allies, as well as Russia’s illegal war in Ukraine.
At home, President Xi Jinping’s ruling Communist Party has ballooning bad loans in the property sector, a debt landslide engulfing local governments and stalling consumer demand.
Spiraling energy costs are also fueling global inflation as price hikes hit households worldwide.
By the numbers:
- China’s controversial GDP growth target for 2022 is around 5.5%.
- Beijing aims to create more than 11 million new jobs this year.
- A key area will be youth unemployment or people aged between 16 and 24.
- In 2021, it climbed to more than 15%.
- Tax refunds and cuts will top 2.5 trillion yuan or US$395 billion this year.
- The big tech crackdown will continue along with an increase in spending for scientific and technological research.
What was said: “A comprehensive analysis of evolving dynamics at home and abroad indicates that this year our country will encounter many more risks and challenges, and we must keep pushing to overcome them,” Li stressed.
Tough times: In January, the International Monetary Fund predicted that China’s economy would grow 4.8% this year. “China’s recovery lacks balance and momentum,” IMF economists said.
Delve deeper: The problem with Li’s target is that Beijing’s economic data can not be trusted. Even China’s powerful State Council has admitted there are serious flaws in compiling and processing statistics.
Reality check: “The effectiveness of the statistical supervision mechanism needs to be improved. [We must] adhere to scientific methods to make statistics timely, accurate, and reliable. We must prevent falsehood and resolutely curb ‘corruption in numbers’,” new guidelines released last year confirmed.
Big picture: Russia’s invasion of Ukraine will have a dramatic effect on China’s economy. Sanctions by the United States, the European Union and its allies will force Beijing to walk a geopolitical tightrope.
Key issue: To combat Beijing’s deteriorating relationship with major democracies, Chinese defense spending will jump 7.1% in 2022 to 1.45 trillion yuan or $229.47 billion. This will be the seventh consecutive single-digit increase.
Driving factors: “While economic development provides a foundation for a possible defense budget increase, the security threats China is facing are the driving factors,” state-controlled Global Times said in a report this week.
China Factor comment: This looks like being another fraught year for Comrade Xi and his Communist Party policymakers.