1. Newsroom
  2. China's National People Congress: Criticism Misplaced
Menu
Insight 10.03.2016

China's National People Congress: Criticism Misplaced

China's National People Congress: Criticism Misplaced

China’s National People Congress (NPC) commenced during the first week of March, where Premier Li Keqiang announced several economic targets for 2016. Most fell in line with expectations, including growth between 6.5% and 7.0%.


China’s National People Congress (NPC) commenced during the first week of March, where Premier Li Keqiang announced several economic targets for 2016. Most fell in line with expectations, including growth between 6.5% and 7.0%. Despite the well-advertised macro targets, criticism has surfaced that there remains a subtle emphasis on growth, implying that Beijing has chosen economic expansion over reform. This criticism is misplaced, in our view, and instead we argue that the NPC announcements provide Beijing even greater policy maneuvering towards reaching its desired results.

The NPC announcement used the language “between 6.5% and 7.0%” compared to “around” in previous years, which is where the point of contention exists. Some suggests that if Beijing was more adamant towards its reform agenda, the NPC would have reported a slower economic growth, verbiage of “around 6.5%.” What is easily forgotten though is the economic growth target is contingent on job creation. This target is easily achievable mainly because China is experiencing the unwanted desire of a shrinking labor force. Falling since 2012, China’s working age population, which is defined as those between the ages of 15-64, is about 853.7mn in 2015 according to the UN Data, falling about 10mn from the peak. With fewer entering the labor force compared to those retiring, Beijing can then promote an economic policy that fits better with this labor force dynamic, which would likely be closer to the lower end of the NPC’s target, i.e. “around 6.5%.”

However, creating 10m urban jobs is not anodyne for the economy, and instead the focus should be net job creation. The NPC working paper highlighted efforts to further engage in supply side reform. As such, Beijing is taking the unpopular decision to improve the competitiveness of state owned enterprises (SOE), including plans that could lead to 1.3mn job cuts in the coal sector and 500k cuts in the steel industry. With an investment emphasis looking into the new economy of service industries, the challenge will be whether those who are impacted by SOE reforms can be absorbed by the stronger components of the economy.

Christopher Chu
Christopher Chu, Assistant Fund Manager - Asia

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Most read

Insight 19.02.2020

Changes in consumption patterns

Despite being fast-moving and quite unpredictable, changes in consumption patterns are expected to reshape the economic landscape.

Insight 15.04.2020

The Case For Frontier Debt

Fixed-income frontier markets have seen significant growth in both importance and liquidity over the past decade. While still mainly thought of as part of global EM investments, frontier markets have “grown up” and deserve to be considered separately.

Insight 22.04.2020

Impact Report 2019: an eventful year

UBP is proud to release the second edition of its Impact Report.

Further reading

Insight 31.07.2020

Gold/Silver: the early stages of a long-term bull market

Spotlight - Despite the impressive 30% rally for gold and 70% rally in silver from the March lows, the precious metals are likely still in the early stages of a long-cycle bull market.

Insight 29.07.2020

Podcast - The beginning of the USD bear market

Our Global Head of Forex Strategy, Peter Kinsella, shares his outlook for the US dollar for the months ahead.

Insight 28.07.2020

Webinar – The strategic case for gold

On Friday 24 July 2020, UBP's experts Norman Villamin and Peter Kinsella hosted a webinar with John Reade, Chief Market Strategist at the World Gold Council, to discuss the constructive environment for gold.