Middle East turmoil hangs over China’s policy push
‘Rarely in many years have we encountered such a grave and complex landscape,’ Premier Li warns
Clouds of conflict hung over the Great Hall of the People in Beijing today as Premier Li Qiang warned of “external shocks.” It was a reference tailor-made for the Iran War and the crisis in the Middle East after this week’s missile strikes plunged the region into chaos.
In an hour-long speech, China’s senior official after President Xi Jinping mapped out his annual “work report” to 3,000 delegates during the opening session of the National People’s Congress. It was predictable, yet prophetic, highlighting “difficulties and challenges.”
“Rarely in many years have we encountered such a grave and complex landscape, where external shocks and challenges were intertwined with domestic difficulties and tough policy choices,” Li said at the Communist Party’s political event of the year.
His 35-page address was probably written before the airstrikes by Israel and the United States, and Iran’s retaliation barrage on Gulf nations. But it captured perfectly the changing geopolitical terrain in the broader Middle East for Beijing’s key strategic partner.
“We are clear-eyed about the difficulties and challenges we face,” Li pointed out, referring to China’s economic outlook in the coming year both at home and abroad.
The numbers:
- For what it is worth when juggling the fallout from disappearing data, official GDP growth this year has been set for between 4.5% and 5%. The lowest target in 35 years.
- As for defense spending, it will increase by 7% to US$275 billion. Again, that looks suspicious. Last year, it was $330 billion, but the real figure was as high as $700 billion.
[China is] proving to be a feckless friend for its authoritarian allies.
Nicholas Burns, former US ambassador to China
Delve deeper: Still, the Iran War could derail China’s economic plan based on high-tech industries and scientific innovation. AI and robotics top Beijing’s agenda, as it continues to push an export-fueled green model of electric vehicles, batteries, and solar panels.
Between the lines: “[The conflict is] very negative [for Beijing], which counts the Strait of Hormuz as a crucial trade route,” Yuan Yuwei, of Trinity Synergy Investment in Hong Kong, told Reuters, referring to the Gulf’s crucial maritime artery.
Big picture: Apart from the rapidly changing international environment, the world’s second-largest economy faces domestic stagnation. Structural problems include a prolonged property slump, industrial overcapacity, and soaring local government debt.
Bottom line: “Many international observers may be left disappointed by slower progress in rebalancing the economy away from investment towards consumption,” Fred Neumann, the chief Asia economist at HSBC, said, as reported by Reuters.
Looking ahead: There are other big issues looming. Later this month, US President Donald Trump is due to touch down in Beijing on a state visit for talks with President Xi. Top of the agenda will be turmoil in the Middle East if the Iran conflict continues, and trade tensions.
China Factor comment: Yet ahead of Trump’s trip, former US ambassador to China Nicholas Burns taunted Xi in an X post: “[China is] proving to be a feckless friend for its authoritarian allies.” Welcome to the stark facts of realpolitik.