On Thursday, Chinese Premier Li Keqiang delivered the annual state-of-the-nation address to nearly 3000 members of the National People’s Congress, outlining the Chinese government’s plans and priorities for the subsequent year.
A country and government obsessed with GDP growth faced its slowest pace of growth yet since 1990 last year. In his speech, Premier Li lowered China’s GDP growth target down from 7.5% in 2014 to around 7% this year, showing that the Communist party has accepted China’s slower growth and will not take aggressive action to increase the country’s GDP growth. The Chinese state media delivered the mantra that the “new normal” is not slow but rather the “medium-high-level growth” needed to boost living standards and maintain China’s economic stability.
The Communist party holds its power due to their success in delivering rapid growth and improvements in living standards to the people of China and realize that their failure to do so can cause social instability. In order to create growth, the deficit has been widened from 2.1% of GDP to 2.3% in order to fund large infrastructure projects. The government has pledged more than 800 billion yuan for new railways and water conservation projects. President Xi has also put a lot of focus on the “New Silk Road” project, an infrastructure project aimed to connect neighboring borders and economies to China.
China has also moved to ease monetary policy, the People’s Bank of China has cut interest rates for the first time in more than two years. However, businesses are weary of borrowing because of weak domestic demand. In fact, many companies are preparing contingency plans and adjusting to China’s slower momentum. With China’s growth slowing, the country has turned towards encouraging entrepreneurship and small businesses to create jobs in the market. Premier Li has promised reforms to make it easier for individuals to start new businesses and to improve the efficiency and performance of large, state-owned enterprises.
Last year, Premier Li vowed to “declare war on pollution”. However no new plans emerged from his address, disappointing many with his lack of commitment to address environmental issues. Other issues like the large income disparity and an aging population without social security and adequate healthcare in place still need to be addressed. Despite China’s success in becoming an economic powerhouse, it still has a long way to go.