Throughout this week and next, members of China’s highest legislative body, the National People’s Congress (NPC) as well as China’s large political advisory body, the Chinese People’s Political Consultative Conference (CPPCC) will meet in Beijing to discuss how to properly build on past achievements in order to develop a moderately prosperous society for the benefit of the Chinese people. The CPPCC is a particularly important body as it includes not only members of multiple political parties, but also representatives of a variety of business, education, arts, sporting, scientific and cultural sectors.
Collectively, these meetings are known as the Two Sessions. The Two Sessions represents an opportunity for both politicians and private sector experts to exchange a variety of views on a plethora of important issues. Here are the main goals of the Two Sessions for 2019:
Transition to high quality/innovation driven economy
China’s business and political leaders are currently aiming to accelerate the country’s shift from an economic model focused on high growth through mass production to one predicated on sustainable growth based on high quality production, innovation, as well as research and development concerning the technologies of tomorrow.
As more and more domestic mass production becomes automated and as China’s companies seek to create new employment opportunities among Belt and Road partners, the Chinese workforce, in-line with the phenomenon of the expansion of an economic middle class, looks to work with political and business leaders in order to develop a new environment that focuses on promoting and teaching new skillsets that prepare China to become a world leader in technological innovation as well as the production of high quality vehicles, computing equipment, medical/surgical equipment, 5G mobile technology, arts and entertainment and perhaps most importantly, artificial intelligence (AI).
Cutting regulation – not increasing stimulus
As the world stands on the brink of a possible economic recession, China has decided to adopt fiscal and monetary policies which prioritise economic stability and innovation in private sectors, whilst simultaneously trimming fat from state owned enterprises that have fallen behind the times.
One of the methods China will use to achieve this is through tax cuts and other regulation roll backs on entrepreneurial endeavours, whilst modest tax rises on the mega-rich will be used to stimulate sectors favoured by China’s ever growing middle class, whilst also providing an ever more secure social safety net during an era of global uncertainties.
These policies will help to keep the Chinese economy honest, insofar as sensible regulation cuts and a tax regime based on reacting to existing trends whilst helping to shape short term development, is far more fiscally responsible than printing money in order to use the cash to prop up old industries or obsolete practices.
Ever since the Reform and Opening Up of 1978, China has aimed to and has largely succeeded in transforming renminbi from a non-convertible command currency, to one that continues to become fully integrated into the wider international system. To achieve this aim, China avoided both the monetary shock that impoverished Russia in the 1990s, whilst also avoiding attempts by external forces to manipulate renminbi’s value. In this sense, China learned from Japan’s mistakes of the mid 1980s when a rising yen led to a disastrous asset bubble.
Since 2015, renminbi has been included in the international Strategic Drawing Rights (SRDs) currency basket, thus representing a milestone for the Chinese currency. By operating renminbi’s exchange rate on an ultra modern managed float, China is able to reap the advantages of a truly independent currency whilst avoiding the temptations to consistently manipulate the value of its currency. This latter practice of endless currency manipulation has caused stress to the US and European economies in recent decades. By contrast, China has tended to avoid the phenomenon of boom and bust by remaining monetarily prudent.
In this sense, renminbi’s crawling peg against the dollar allows the US dollar to act as an asset in respect of partly determining renminbi’s partially fixed value. This contrasts with bilateral fixed exchange agreements that caused Breeton Woods to collapse in 1971, whilst leading to the Eurozone crisis ten years ago.
Chinese monetary moderation allows for a win-win mixture of flexibility and monetary discipline. This method has seen China securing a ‘best of all worlds’ combination of low inflation, low unemployment, high productivity and relatively low interest rates – something that has become impossible for many powerful western economies. Thus, China is able to take advantage of the virtues of a currency pegged to a de-facto asset while allowing for the free development of a renminbi that by the end of the 21st century, could likely become one of the world’s reserve currencies in the framework of a currency basket model that China favours along the liens set out in 2009 by Zhou Xiaochuan, the 11th Governor of the People’s Bank of China.
Belt and Road connectivity
China’s leadership is aware that at a time when American protectionism and instability in Europe has caused shockwaves throughout many Asian markets, the key to securing win-win prosperity revolves around an ever growing commitment to increase the scope of Belt and Road partnerships. The more inter-connected trading partners in the developing world become, the more that such connectivity can help to shield emerging markets from global economic shocks.
The symbiotic relationship between Belt and Road partners will help to assure that even when global demand falls in certain regions, Belt and Road trade will continue along a path that offers sustainable revenue generating opportunities for both industrial, agricultural and hybrid economic models.
China is deeply sensitive to the concerns of potential future Belt and Road partners and because of this, China will aim to demonstrate how Belt and Road offers both a clear path out of poverty and into long term sustainable development. Likewise, Belt and Road connectivity is an economic umbrella that can help developing economies avoid the pitfalls of boom and bust that is associated with loans from neo-liberal western financial institutions.
Flexible and bespoke China’s solutions to the challenges within individual emerging markets is a key asset to partners who seek to plough ahead with major megaprojects and other job creating and revenue generating initiatives in a new era of rules based trade and cooperation between respectful partners.
More economic openness – including with the USA
It remains China’s goal to reach an agreement with the United States that allows for win-win outcomes that will see ever more 2-way trade between the world’s two largest trading partners. This is China’s goal not because of, but in spite of the trade war. China had always planed to use the final years of this decade to increase the amount of imports, foreign service and foreign capital coming into China. As such, the US has thus far missed out on opportunities in this respect, due to Donald Trump’s insistence on protectionist measures.
That being said, whilst China seeks to increase two-way economic openness with a variety of partners, because of the unique trading relationship between the world’s largest economies, China seeks to reach an end to the Trump trade war on a win-win basis. This will allow more American exports to enter China than at any previous time in contemporary history, whilst it will also allow US consumers options to purchase Chinese products at a lower cost than was previously possible.
China is currently the world leader in solar panel technology and beyond this, due to necessity being the mother of invention, China has also become a world leader in a variety of ultra-modern and ultra-efficient green technologies. Like all industrial revolutions, China’s has brought with it new environmental challenges and as such, China looks to create economically and environmentally sustainable solutions to the problem of pollution. As such, China looks to become the world leader in electric cars and other zero emissions vehicles that deliver both comfort, power and reliability, without compromising the environment.
Fighting the Three Evils
China has declared terrorism, separatism and religious extremism to be three universal evils that must be combated both internally and among multilateral partnerships for peace, including through fora like the Shanghai Cooperation Organisation. As such, experts at the Two Sessions will continue to discuss the best methods one can employ to secure peace and stability both in China and among China’s partners who share a mutual interest in combating these three evils.
Xi Jinping Thought offers China the opportunity to meet future challenges in a way that prioritises a human-centred approach to an era when new forms of technology offer transformative opportunities for people across the planet. By prioritising innovation and development at home, China can help to build its people a moderately prosperous society whilst the power of Belt and Road connectivity can help those throughout the wirder world to enter a new era of peace through prosperity.
Throughout this week and next, the best minds throughout China will continue to develop new strategies to help accomplish these goals.