China: Two Sessions, Six Priorities

Published on May 18, 2020

“Two Sessions,” the annual conclave of the Chinese People’s Political Consultative Conference (CPPCC) National Committee, China’s top political advisory body, and the National People’s Congress (NPC), its top legislative body, will be held in Beijing starting on May 21, and run through May 28.

Premier Li Keqiang is slated to deliver the government work report on May 22.

*** At a State Council Executive Meeting last Wednesday in Zhongnanhai, Premier Li confirmed that the government will consider refraining from setting a GDP growth target for this year, and will instead prioritize job creation, and the protection of the people’s standards of living, as primary economic targets (see SGH 4/13/20, “China: Q1 Data and Beyond”). ***

*** And in a preview of the “Two Sessions,” Li also called on the country to pursue a so-called “Six Priorities” plan. Those are: safeguarding employment; protecting people’s livelihoods; the development of market entities; food and energy security; ensuring the stable operation of industrial and supply chains; and ensuring the smooth functioning of society while preventing a renewed outbreak of COVID-19. ***

*** As for the specific fiscal and monetary policy measures markets will be looking for, Premier Li, from what we understand, said the government will set a “special budget” for the Six Priorities, rather than issue “unpacked policies.” In that way, the collective effect of various policies will be amplified, rather than limiting the confidence impact of any individual measure on a piecemeal announcement. ***

That, at least, is the plan…

April’s “Suggested” Targets

On the fiscal front, the Third Session of the 13th NPC is set to rubber stamp the high-level measures already approved by the Politburo in April (outlined in SGH 4/27/20, “China: Modest Fiscal Stimulus Plans”). Those measures, subject to upwards revision since then, were:

** A net increase of 1.43 trillion yuan in the government deficit over last year, which would boost the deficit to GDP ratio from 2.8% last year to 3.5% in 2020. That is the official number for the central government deficit, and market estimates for “real” deficit spending will undoubtedly be considerably higher than that.

** A net increase of 2.4 trillion yuan in central government tax rebates and transfer payments to local governments that will include a special transfer of 410 billion yuan to the COVID-19 stricken Hubei province.

** A net increase of 1.2 trillion yuan in tax and fee reductions, from 2.3 trillion yuan in 2019 to 3.5 trillion yuan in 2020. These numbers do not include additional spending on social insurance and basic medical insurance premiums.

** In addition, the State Council has issued in advance a total ceiling of 1.57 trillion yuan for new local government debt for 2020, in accordance with the authorization decisions of the previous, 16th, Session of the 13th NPCSC.

While the COVID-19 outbreak has had an unprecedented impact on China’s economic and social development, State Council sources acknowledge that Beijing’s stimulus package is quite moderate in comparison to the G7 member countries.

The reason, as a reminder, for that is two-fold: to maintain headroom should further stimulus be needed, and to balance the need to stimulate growth with a rapidly deteriorating budgetary situation.

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