Chinese authorities are eager to leave the negative effects of the COVID-19 pandemic behind and are ready to boost consumer confidence, employment, and economic growth. In their last “Two Sessions” gathering in March, the government announced its intention to maintain high quality and sustainable growth, as well as promote an attractive environment for foreign investors, reducing restrictions on market entry and promoting pro-business policies.
During the annual meeting, Premier Li Keqiang delivered his last government work report for 2023 (“GWR”) to policymakers, setting the tone for the Chinese economy in the coming year and addressing important economic and trade aspects, namely foreign investment, and technological innovation.
The appointment of Li Qiang as his successor was received by international markets with optimism since he is viewed as an advocate for foreign business and investment. In his first exchange with the media, Li said that the government was “unswervingly” committed to private business and keen to promote fair competition, adding that political leaders should make friends with businesspeople.
This year's Two Sessions, occurring at a time when China faces increasing challenges both domestically and internationally, was a pivotal event for institutional reform, the establishment of new state leadership, and the introduction of various new economic policies.
Instead of setting an ambitious gross domestic product (GDP) growth target, China aims to gain, and maintain, high quality and sustainable growth. The GWR indicated that the country’s GDP target for this year will be around 5%, with intensified macroeconomic policies to stabilize economic growth.
Increasing domestic consumption and restoring business confidence, particularly in the tourism, catering, and retail sectors, will be a main focus, with the aim of achieving a 3% rise in its consumer price index. Approximately 12 million new urban jobs will be created in 2023, making employment a top priority post-COVID.
The Chinese Communist Party (CCP) has expressed in repeated occasions that consumption – as opposed to just investment – needs to be a strong growth driver in 2023. From the start of the year, local governments, banks, and companies have started offering subsidies, discounts and beneficial policies to consumers and businesses.
The outgoing premier Li Keqiang identified driving up consumption as China’s number one economic priority. Without giving any details, he called on the recovery and expansion of consumption by lifting wages, increasing society-wide investment, and stabilizing the purchase of big-ticket items.
According to the GWR, China will continue to intensify efforts to attract foreign investment and launch landmark foreign-funded projects. In the past few years, the enactment of the Foreign Investment Law, the further reduction of items on ‘negative lists’ and the establishment of 21 pilot free trade zones have been proof of the government’s serious intentions to attract foreign investment.
Li Keqiang reassured that this emphasis would continue as China increases market access for and encourages the “national treatment” of foreign investors.
It was also announced that China will join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPATPP”), which is a high-end trade and investment pact. Members of CPATPP are aligned in efforts to counter challenges posed by external competitors of international trade and the usage of foreign capital.
As a way to attract more foreign investment, China informed that it will play a greater role in the Regional Comprehensive Economic Partnership Agreement, the world's largest free trade pact, and set an example for other signatories.
The government expressed its commitment to proposing favourable policies on tariffs, import-related taxes, and tax refunds; and expand its importing of advanced technologies, important facilities, and energy resources.
Foreign businesses should keep an eye out for beneficial policies. During the Two Sessions, Beijing declared that foreign retailers setting up shop locally may claim a RMB 5 million subsidy, and Hainan has since upgraded duty-free shopping and resumed its visa-free policy for foreign travellers.
After more than two years of strict lockdowns and zero-Covid policies, the main Chinese legislative bodies underscored the importance of domestic and foreign private businesses.
The GWR called for the protection, support, fair treatment, and guidance of private businesses. It also named the attraction of foreign direct investment as China’s fourth top economic priority.
The All-China Federation of Industry and Commerce (ACFIC) made a proposal to the State Council, suggesting a radical piece of legislation giving private enterprises equal treatment to state-owned organizations under the law. The legislation has received much domestic media attention but may not be adopted.
Another positive sign is the announcement that China’s intellectual property rights (IPR) office has been placed directly under the State Council. This will give it far more authority and indicates that the government is prioritizing IPR, which is essential for the fostering of entrepreneurship and innovation.
The GWR highlighted the importance of technology and ESG as necessities for long-term growth. These two sectors have historically attracted more capital for investment from government support measures, as well as from private market players.
Li Keqiang called for the Chinese government to promote and facilitate key technological breakthroughs. While enterprises will be the main drivers for innovation, the government intends to take the following steps to implement the GWR blueprint:
China plans to restructure its Ministry of Science and Technology (MoST) in line with a reform plan submitted to the National People’s Congress following the GWR. The aim is to better allocate resources to implement a new system to mobilize towards breakthroughs in the technological space and achieve greater independence in areas such as microchips.
China will continue to expand its 5G network while further promoting the research and development of 6G and other cutting-edge technologies. This includes humanoid robots, metaverse, quantum technology and more, to better support the implementation of a modern industrial system.
Leaders of domestic technology companies have proposed that China accelerates the construction of artificial intelligence (“AI”) models to reap the rewards of the current and future AI boom.
The GWR expressed that focus will be concentrated on green and low-carbon developments. China aims to intensify pollution prevention and control, moving quickly to develop a new energy system, improve policies for green development, and advance energy conservation and carbon reduction in key areas.
As tensions within international politics rise, so does the attention on energy security. China needs to work on developing relevant technologies that will promote clean and efficient use to ensure energy security and achieve developments in green energy.
China will continue to enhance market coverage of electric vehicles as part of its stimulus package to boost new energy in the motor and vehicular industry, in addition to promoting the wider use of battery swap technology. Automotive industries have urged the government to roll out supportive policies to reduce the construction cost of battery swap facilities and to push for a standard battery design among different manufacturers.
China’s financial regulatory apparatus also underwent significant reforms, with existing bodies being renamed, given more authority, and having their responsibilities shifted. The reform aims to give regulators more power to carry out their functions and solve the issue of abusable gaps and overlaps in jurisdiction.
Two central finance leaders, Finance Minister Liu Kun and People’s Bank of China governor Yi Gang, will remain in place for now, maintaining some continuity to reassure markets as structural reforms are carried out.
The financial restructuring may help bring a more consistent implementation of policy, clearer rules, and more streamlined processes.
Further changes and announcements are aimed at advancing China’s technological, scientific, and military capabilities to safeguard its security and prosperity.
China’s military spending was increased by 7%, the highest in a decade. China is now the second-highest military spender in the world, however far behind the enormous US’s military budget. This move reflects the intention to upgrade security during a period of geopolitical tension and improve its capacity to face any global crises.
A body aimed at governing the use and commercial development of big data was created and placed under a high-level party commission. Interestingly, one of this body’s goals is to encourage data sharing for the sake of promoting “smart cities” and an increasingly digital society.
The GWR stated that the central government will guarantee that Hong Kong and Macau continue to enjoy high levels of autonomy to ensure and facilitate the development and stability of the two regions. Specifically, the document outlined supportive policies regarding the Greater Bay Area.
Hong Kong will play a bigger role as the super–connector: increasing efforts to attract foreign capital by expanding market access and better serving foreign entities.
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