Exclusive Insight: The Unknown Side of ‘Fire Caption’ Wang Qishan
China Sets Lowest Economic Growth Target in Decades; After China’s Winter of Discontent, Xi Jinping Sets Sights on Growth and Power
In today's issue of "The China Brief," we look at China's conservative GDP growth target for 2023, the country's accelerating military spending, and its emphasis on achieving self-reliance in technology. We also examine the expected concentration of policymaking under leader Xi Jinping and his plans to elevate China into a technologically advanced superpower, as well as the conciliatory tone taken towards Taiwan in the government work report. Finally, we report on billionaire investor Mark Mobius warning of China's restriction on the outflow of capital and his advice for investors to be cautious when investing in the country.
And here’s today’s exclusive insight:
Exclusive Insight: The Unknown Side of ‘Fire Caption’ Wang Qishan
This article is the third part of a series titled "Fundamental Issues with China's Fiscal System." During Premier Wen Jiabao's administration, then Vice Premier Wang Qishan was responsible for finance and allowed local governments to use "platform companies" to raise funds without complying with the Budget Law. These financing platforms enabled local governments to borrow from banks while keeping these loans off their budgets, creating an "implicit debt" that obscured the real amount owed.
During the 2008 global economic crisis, local governments were able to borrow massive amounts of debt, resulting in a staggering RMB 9 trillion investment in economic stimulus. Central and local governments poured in approximately one-third of that year's GDP, providing a significant boost to the economy. However, the inflation rate shot up rapidly in 2009, prompting the Wen Jiabao administration to tighten credit, suppress inflation, and pressure banks to recover massive loans made to businesses and local government platform companies. Yet, loans given to projects such as high-speed rail and infrastructure had long construction and return cycles, rendering them unable to be repaid in the short term.
To mask this problem, the Wen Jiabao administration tacitly allowed the financial system to replace massive bank credit with funds from the shadow banking system. This system comprises banks and non-bank financial institutions, such as trusts, insurance companies, and securities firms, which issue products with higher returns than bank deposit rates and match funds to project parties at higher interest rates than bank loan rates. These products have a high cost and short term, and the funds do not appear on the financial institution's balance sheet, eluding supervision.
Li Weijun, a special analysis expert for "The China Brief," authored this article.
WSJ: China Sets Lowest Economic Growth Target in Decades
China has announced a conservative GDP growth target of around 5% for 2023, the lowest in over 25 years, as the country faces challenges in the domestic and global economy following the end of Covid-19 measures. This suggests that officials are focusing on other priorities beyond raw economic expansion. Premier Li Keqiang stated that this year it is essential to prioritize economic stability while pursuing progress. The target is more cautious than the roughly 5.5% goal set by Beijing last year, which China missed by a wide margin. The relatively conservative target shows that policymakers are wary of challenges that could slow down the pace of recovery, including tepid business and consumer confidence, weak overseas demand for Chinese-made goods, and heavy local government debt loads.
WSJ: China’s Military-Spending Growth to Accelerate to 7.2% This Year
China plans to increase its military spending by 7.2% this year, accelerating its military buildup as tensions with the US and its allies rise over Taiwan. This year’s spending increase signals the priority that leader Xi Jinping has attached to upgrading China’s defence forces, even as flagging economic growth increases fiscal stresses. China is making a multidecade effort to build the People’s Liberation Army into what Beijing says will be a “world-class” military by 2049, the centennial of the Communist Party’s coming to power. The issue of Taiwan is the biggest potential US-China flashpoint.
Bloomberg: China Emphasizes ‘Whole Nation’ Stance on Tech as US Curbs Bite
In his government work report, outgoing Premier Li Keqiang emphasized China's determination to achieve self-reliance in technology by pooling together all of the nation's resources to edge out the US on basic scientific research and advanced technologies. The remarks signal the top leadership's determination to break chokepoints for an upper hand in the tech war with the US. The Chinese government's hefty investment in the chip industry has borne little fruit in recent years, and recent US blacklisting has further hampered progress. China is now pledging to make key technological breakthroughs by pooling quality resources and making concerted efforts.
NYT: After China’s Winter of Discontent, Xi Jinping Sets Sights on Growth and Power
China's top leader, Xi Jinping, is expected to secure even more power at the annual gathering of the national legislature that opened on Sunday, following a year of faltering growth, widespread protests, and a surge of Covid-19 deaths. The nearly 3,000 carefully selected delegates to the legislature are expected to approve a bureaucratic reorganization that will further concentrate policymaking under Mr. Xi and the party. The government laid out a post-Covid agenda centered on reviving the economy with a 5% growth target, raising spending on military, education and social needs, and augmenting Mr. Xi’s already formidable influence. Mr. Xi also wants to elevate China into a technologically advanced superpower capable of standing up to Washington as a peer. The government also plans to raise its military budget by 7.2%.
SCMP: Beijing takes conciliatory tone on Taiwan with call to ‘advance’ exchanges
Chinese Premier Li Keqiang took a conciliatory tone towards Taiwan in his government work report, stating that Beijing would increase efforts to restore exchanges and economic ties with Taiwan. However, he reiterated that there would be steps to oppose "Taiwan independence" and promote "reunification" with the island. There was no mention of opposing foreign interference on Taiwan in this year's report, unlike last year's. Li's more moderate tone comes amid tensions across the Taiwan Strait and as the US seeks closer ties with Taiwan.
SCMP: Leading diplomats Wang Yi and Qin Gang’s efforts to set the foreign policy stage have been hampered by balloon saga and Ukraine war
China's leading diplomats, Wang Yi and Qin Gang, have been setting the scene for the country's foreign policy agenda ahead of the annual "two sessions" meetings of China’s National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference. Their efforts have been affected by the balloon saga and the ongoing Ukraine war. However, they have still managed to give a glimpse of Beijing's priorities, including a focus on developing countries and Europe rather than the US. The Chinese government's report at this year's "two sessions" is expected to focus on the economy rather than China-US relations.
SCMP: ‘I can’t get my money out’: billionaire investor Mark Mobius says China is restricting flows of capital out of the country
Billionaire investor Mark Mobius has warned that China is restricting flows of capital out of the country, stating that he is unable to pull investment funds from his account in Shanghai. Mobius, the founder of Mobius Capital Partners and former executive chairman of Templeton Emerging Markets Group, is known for his bullish views on China, but now warns investors to be “very, very careful” about investing in the country. He cited the government’s increasing control over the economy and companies as reasons for caution, adding that he is increasing exposure to alternative markets such as India and Brazil.
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