Wednesday, 2024 June 19

China’s new premier Li Qiang on growth target, economic strategy and U.S. relationship

In his debut press conference at Great Hall of the People today, China’s new premier Li Qiang addressed the country’s latest economic strategy and reform agenda, concluding the first annual meeting of the 14th National People’s Congress, China’s legislative body and supreme authority. Li Qiang, the 63-year-old former governor of Shanghai, will head the newly elected State Council of China, leading the world’s second-largest economy with 1.4 billion people through global economic and political turbulence for the next five years.

36Kr Global Research summarized the key takeaways and observations from the press conference today.

New Government’s Focus

A new generation of chinese premiers and ministers were elected during the 9-day-long congress. The new State Council faces various challenges in the next five years from 2023 to 2028, marking a new era for China post the COVID19 pandemic and the technocrat government led by previous premier Li Keqiang. Kicking off the press conference, Li Qiang introduced the key goals and focus areas as head of the new government:

  1. People-centric development goal: the new government shall answer core questions that are relevant to Chinese citizens, including housing, employment, income, education, medical care and environmental protection. The government’s central goal is to achieve people’s aspiration towards a better life. “Ordinary people do not care about GDP growth figures on a daily basis”.
  2. Shift to a high-quality economy: although being the world’s 2nd largest economy, China still lags behind in many perspectives on a per capita base. The next phase of China’s economic growth shall focus on quality, instead of quantity. Focus will especially be put on technology innovation, upgrade to a modern industrial value-chain, as well as the transition to a green and sustainable development model.
  3. Adherence to opening-up and reform: the country will continue its path on further economic opening-up and system reform. A market-driven Chinese economy that is highly accessible for international players shall remain the fundamental driver of China’s future growth.
Li Qiang, the new premier of China and head of 14th State Council

Economic Growth Target

It is widely expected that China’s economy will witness strong growth in 2023, the first year after the country officially ended its zero-COVID policy. The market watches closely on how the new government plans to boost its troubled economy, which “only” scored a 3% growth last year – much lower than the 5.5% target set at the beginning of the year, and the first time China failed to achieve its GDP growth target since 1990.

  1. China targets a 5% GDP growth for 2023: the new government of Li Qiang lowered the economic growth target by half percent to 5%, which is still a challenge for the 120 trillion CNY (about 16tn EUR) Chinese economy.
  2. Stability is still the priority: stable economic growth, stable employment recovery and most importantly a stable level of inflation rate, which hiked to 2.8% September last year amid the peak of COVID lockdown in China.
  3. A combination of new policies are to be deployed this year, including new macro level monetary policies, stimulation plan of domestic consumption, innovation and reformation incentives as well as systemic risk mitigation measurements.
  4. The outlook is positive: China’s economy saw considerable rebounce in the first two months of 2023. The PMI came back to 52.6% level in February, while the CPI dropped to 1.0%. In the most recent update of World Economic Outlook report, IMF raised its projection on China’s economic growth to 5.2% for the year of 2023.

Private Sector & SME

Li Qiang is a somewhat uncommon Chinese premier: prior to the new role as head of the government, he had never served in central government positions. Li Qiang spent a significant time of his political career in the Yangtze Delta region, which is known as China’s most developed areas, with a booming private sector. Started as a junior CYL officer in Ruian county under Wenzhou city, Li Qiang quickly rose to governor of Zhejiang province, then reallocated to manage Jiangsu province, and was positioned as party secretary of Shanghai city in the past five years.

Throughout his career, Li Qiang has a deep understanding of China’s private sector and SMEs, who have been seriously impacted by the pandemic over the past three years. Therefore, boosting the confidence of the private sector is a top priority for the new government. Li Qiang laid out his perspective during his first press conference as premier, which immediately went viral on chinese social media:

  1. “Two Unswervingly” – work unswervingly both to consolidate and develop the public sector and to encourage, support and guide the private sector – remains China’s principal economic development policy, which has never been changed and will not change in the future. China will not return to a central economy system and will continue to promote private enterprises and SMEs.
  2. Longing China’s private sector: the new government under Li Qiang shall push for reforms on various fronts including free markets, modern company laws as well as foreign investment regulations, in order to provide a fair playground for all players, especially focusing on equal treatment and fair competition between state-owned enterprises and private enterprises. From a long term perspective, Li Qiang believes that China’s huge domestic market provides vast opportunities for private enterprises and SMEs, especially in innovation and new-economy fields.
  3. Boosting entrepreneurs’ confidence: Li Qiang calls for confidence in the further development of China’s private sector and startup ecosystem, perhaps the strongest message from the press conference. In his view, the entrepreneurship spirit is still the key success factor to the economic boom of Yangtze Delta region as well as entire China, despite the rapid evolution of technologies and business models. Li Qiang requests local chinese governments to operate with a service-centric attitude, supporting startup founders and entrepreneurs, while creating a friendly but transparent relationship between regulators and business owners.

Population Decline & Job Market

In the past year, China’s population growth came to a historical turning-point. For the first time since the “leap-forward” movement in the 1960s, the country’s population saw a drop by 0.60‰ in 2022. It is expected China is now entering into the population decline path and will face a challenging population-aging problem.

Li Qiang looked at the issue from another perspective. In his view, the 0.9 billion working population in China is still an important competitive advantage. China is not losing its “demographic dividend”, but rather benefiting from the “talent dividend”: there are 240 million people in China who have university degrees, and the country adds 15 million young people to the labor force annually, with an average education experience of 14 years. With that said, the new Chinese government would by no means take the aging issue lightly. Various policies and reforms are in the making, for example overhaul of the pension system, increase of the retirement age, etc.

Another issue closely related to the population degrowth is the job market. In July 2022, the unemployment rate of people aged from 16 to 24 in China peaked at a historical height of 20%. Although the situation has been eased throughout the second half of 2022, the overall unemployment in China was still at a high level of 5.5% at the end of 2022. 12 million new Chinese graduates will enter the labor market this year and face enormous pressure finding jobs. Unemployment will not only harm economic recovery, but also add pressure to China’s already stressed healthcare and pension systems, which shall support the country’s rapidly aging population.

The only solution to the unemployment problem is economic growth, said Li Qiang. His new government will deploy an “employment first” strategy, boosting employment services, vocational training, entrepreneurship as well as gig-economy in China.

U.S. – China Decoupling

Over the past months, the U.S. – China tension has entered into a high level: export ban on various sectors from the U.S. To China, sanctions on Chinese companies, and the balloon spying affair, just to name a few. The “decoupling” of China – U.S. economy, especially in the high-tech sectors, adds to the global geopolitical divergence which has already been fueled by the Russia – Ukraine war. Nevertheless, China – U.S. trade volume has hit a historical record of 650 billion USD over the past 2022, showing a very different reality.

The new premier dismissed this concern: “I really have no idea who will benefit from such decoupling rumours between China and the U.S..” While working as party secretary of Shanghai, China’s foreign investment and financial hub, Li Qiang has spoken to many U.S. companies last year, and only heard positive feedback and outlooks, according to him. “China and the U.S. benefits from the growth of each other”, he added: “the two economies are highly integrated and interdependent as well.”

Li Qiang further mentioned that China will be opening-up further in 2023 and adopting “high standard international trade and investment rules”, implying possible new movements under the RECEP framework which entered into effect last year.

He also suggested the China International Import Expo as a good opportunity for international companies exploring the Chinese market. The annual trade fair was launched in 2018 in Shanghai, but was hit by the COVID19 pandemic over the last three years. The 2023 CIIE will be held between 5th and 10th November and is expected to draw a record number of participants this time.

Agricultural Sector & Rural Areas

Being a populous country with a large agricultural sector, there are about 500 million Chinese people who regularly live and work in the countryside, making up one third of China’s entire population. Many experts expressed their concern that Chinese farmers did not benefit from economic development over the past decades. An increasing portion of young people have left the countryside and the agricultural sector, leaving many Chinese rural areas towards further decline. The modernization of the agricultural sector and the revival of rural areas pose therefore as important tasks for the new government. At the press conference, Li Qiang indicated a few key points:

  1. Food security at high priority: focusing on farming land improvement and seed management, the new government aims to secure China’s domestic food supply and agricultural self-sufficiency. New policies to promote agricultural production will be put into effect, in order to safeguard the 1.2 million km² farming land and 1.4 billion Chinese people’s food security.
  2. Diversified development strategy of rural areas: famously coined the “characteristic town” concept during his time in Zhejiang province, a diversified development strategy will be the central piece in Li Qiang’s rural area revival plan. The focus shall be not only put on economic growth, but also around the environmental system, local culture and heritages in these rural areas.
  3. Deepening rural reforms: historically, support from rural areas has been critical to the victory of the Communist Party during the Chinese civil war. Li Qiang calls for further rural reforms, to motivate Chinese farmers by sharing a larger portion of economic benefit from China’s growth.

COVID19 Strategy

The more than 2-year-long zero-COVID policy in China hit not only the country’s own economy, but also slowed down the global recovery. Li Qiang defended the nation’s COVID policy and especially praised the fast recovery since China abruptly ended its nation-wide lockdown policy in December 2022. Since then, the social and economic activities in China have returned back to normal, and most international travel restrictions have also been lifted.

The reopening has paved the way for a faster-than-expected economic recovery, but the COVID risk has not been fully eliminated yet, said Li Qiang. In order to safeguard the recovery, China will further accelerate R&D efforts in COVID-19 vaccinations and medicines, while making various emergency plans for unexpected resurgence of the pandemic. Also, the medical care and insurance system in China shall see further reform and improvement.

Li Qiang shakes hand with his predecessor Li Keqiang, marking the transition of the new Chinese government
36Kr Global Research
36Kr Global Research
36Kr Global Research periodically publishes market trends and industrial intelligence. Powered by in-house experts and data engine, we deliver global clients with exclusive, first-hand and top-quality research insights. From sector screening to data drilling, we support decision-making across a broad spectrum of industries.

Related Read