China: “Two Sessions,” Stability, and Li’s Work Report

Published on March 3, 2022
SGH Insight
GDP Target
The Central Economic Work Conference (CEWC) in December recommended setting the 2022 GDP target for China in a range of 5.0-5.5%.
Given the current geopolitical conflicts, disruptions of global industrial chains, and high inflation, the politburo meeting however recommended a 2022 GDP growth rate target of “above 5.0%.”
Under Chinese law, the government work report and its development targets must be reported to the Chairman’s meeting of the NPC Standing Committee and approved before the “Two Sessions.” Premier Li submitted two proposals to the top legislature: a 2022 GDP growth rate target at above 5.0%, or a range of 5.0-5.5%. The chairman’s meeting of the NPC Standing Committee will make the final decision.
Market Validation
Bloomberg 3/5/22

China’s government signaled more stimulus is
on the cards by setting an aggressive economic growth target,
calling for confidence amid rising domestic strains and global
instability stemming from Russia’s invasion of Ukraine.
While the growth goal of about 5.5% for this year is the
lowest in more than three decades, it’s above consensus
forecasts closer to 5% and far higher than the International
Monetary Fund’s projection of a 4.8% expansion.

On February 25th President Xi Jinping, in his role as General Secretary of the Communist Party of China Central Committee, presided over a Politburo meeting to discuss the draft 2022 Government Work Report. The Work Report will be presented by Premier Li Keqiang to the fifth session of the 13th National People’s Conference for deliberation on March 5th at the “Great Hall of the People” in Beijing.

The Politburo meeting once again placed enormous emphasis on stability as the top priority of this year’s government work.

Stability, stability, stability

At the meeting, President Xi stressed the critical importance of seeking “economic stability” in addressing various challenges for 2022, ranging from shrinking demand and an ongoing supply crunch to downward pressure on China’s economic prospects.

The meeting called on governments at all levels to assume responsibility for stabilizing the macroeconomy, and for all sides to take the initiative and launch “policies conducive to economic stability.”

GDP Target

The Central Economic Work Conference (CEWC) in December recommended setting the 2022 GDP target for China in a range of 5.0-5.5%.

Given the current geopolitical conflicts, disruptions of global industrial chains, and high inflation, the politburo meeting however recommended a 2022 GDP growth rate target of “above 5.0%.”

Under Chinese law, the government work report and its development targets must be reported to the Chairman’s meeting of the NPC Standing Committee and approved before the “Two Sessions.” Premier Li submitted two proposals to the top legislature: a 2022 GDP growth rate target at above 5.0%, or a range of 5.0-5.5%. The chairman’s meeting of the NPC Standing Committee will make the final decision.

According to the 2022 government work report of 31 provinces, only two provincial-level governments — Beijing and Tianjin — have set a GDP target of 5.0%. The remaining 29 provinces set GDP targets at 5.5% or above, with 15 provinces optimistically set at 6.5% or above, including one even at 8.0% and one as high as at 9.0%.

By contrast, officials in Beijing merely express that China’s real economic growth this year is bound to remain above 5.0%.

Other Major Economic Targets  

In his report, Premier Li stuck to a CPI target for this year of 3.0%, the same as last year. Officials note that actual CPI for the full year is expected to come in between 1.5% and 2.2%, and they expect or hope that the “scissors gap” between CPI and soaring PPI will be further narrowed, leaving enough room for monetary policy adjustment.

Li will also stress that China’s high-tech sector must have “a new development pattern, with the domestic [sector] as the mainstay, and the international and domestic cycles promoting and reinforcing each other.” What that vague language is meant to mean is that China’s high-tech sector must follow a path that is not controlled by others.

China will refrain from setting a value-added industrial output target, but the MIIT (Ministry of Industry and Information Technology) predicts that value-added industrial output will increase by 5.0-5.5% this year. China’s value-added industrial output rose 9.6% last year.

Premier Li will stress the need to stabilize fixed asset investment (FAI) and further increase effective investment in “key sectors and weak links,” but will also refrain from announcing a growth target for FAI. The NDRC (National Development and Reform Commission) predicts FAI will increase around 5.2-5.6% year on year for 2022.

On a strategic level, Li will stress that China must persist in expanding internal demand, accelerate the cultivation of “a complete internal demand system,” further formulate measures and policies to support consumption, and continuously improve residents’ income.

Li will also, however, refrain from announcing a consumption growth target. The NDRC predicts that total retail sales of consumer goods will increase by 6.0-7.0% this year, despite a sluggish start to the year. Officials say consumption growth in the first quarter of this year is likely to be only 1.0-2.0% but blame that in part on year-on-year comparisons, pointing to a 34.2% growth rate in the same period last year. They are hoping for a rebound to start from the second quarter this year, and to take hold especially in the third and fourth quarters.

As in the last five years, Premier Li will not announce a 2022 foreign trade growth target, but will rather call for greater efforts to increase imports and exports, push for a more diversified export market, and call for a cut to “institutional costs of importing procedures,” which we believe means regulations and red tape.

Back to list