China's National People's Congress Wraps Up
Mar. 16, 2016
The annual meeting of the National People's Congress has come to a close in Beijing, amid growing concerns about the impact of China's current slowdown.
The world's attention was on the economic blueprint leaders announced for the next 5 years. The roadmap includes a mix of measures to stimulate growth in the short term, and structural reforms to keep the economy growing.
President Xi Jinping and other leaders joined more than 2,800 representatives in the Great Hall of the People to vote on 9 measures. The delegates passed the budget, which will raise the fiscal deficit to a record-high 3 percent of GDP.
But more than 10 percent voted against it. Observers say the result reflects a clash between those who want more stimulus and those worried about the widening deficit. Delegates adopted other measures with bigger majorities.
China's new 5-year plan sets a lower annual growth target of at least 6.5 percent. It also pledges to lift more than 50 million people in rural areas out of poverty.
Premier Li Keqiang addressed concerns that China's economy is heading for a crash.
"As long as China maintains its policy of reform and opening up, the economy will not experience a 'hard landing,'" he said.
The government will also push ahead with reforms to tackle production overcapacity in heavy industries and state-owned firms, Li said.
NHK World's Yuko Fukushima joined hosts Sho Beppu and Aki Shibuya in the studio.
Beppu: Yuko, so the delegates had a lot to discuss over the past 10 days. And they came up with this idea to pursue both strucutural reform and high growth at the same time.
Fukushima: Yes, it is quite ambitious. Chinese leaders are aiming for stable growth between 6.5 and 7 percent, and they're also emphasizing the need to push ahead with structural reforms. High on their list is dealing with so-called "zombie firms" -- state-owned companies that are no longer viable businesses. The main tools for that will be massive mergers and restructuring, particularly in the steel and coal industries, where excess capacity is a serious problem.
Shibuya: Large-scale restructuring means a lot of people stand to lose their jobs. Wouldn't that also hurt the economy?
Fukushima: Absolutely. Letting entire companies go bust could be very disruptive. That's why the government is also taking other steps to boost growth. One is to address the widening gap between urban and rural areas, in a bid to lift farmers out of poverty and turn them into consumers.
Creating New Consumers
As China has developed economically, places like Guizhou Province have been left behind. Officials are building a new type of city there to house local farmers.
Local authorities plan to move farmers in from surrounding areas. By 2030, the new city will have a population of 2 million.
The project is based on the National New-type Urbanization Plan the Chinese government unveiled 2 years ago. It calls for the creation of midsized cities around China.
Local governments would attract businesses, and provide new residents with jobs and housing. As an added incentive, people would see their social welfare benefits increase.
Steady salaries would push more people into the middle class. And that would boost domestic consumption.
Officials in Beijing want to build more than130 of these cities around China. Construction of the new city in Guizhou began 2 years ago. Its population has topped 700,000 people. One electronic equipment maker built a plant that employs 300 workers.
But it's too early to declare the plan a success. As more cities pop up, competition to attract companies will intensify. Some question whether all will be able to bring in promising businesses.
And not everyone is happy about the relocation program, including some of the local farmers who have been told to move to the new city. Authorities have already cut off water for their rice paddies.
"We want to live in this village. But we have to do what the authorities say," one of the farmers says.
Once they move, they'll have to find jobs. But they've spent most of their lives working on the farm, and they're worried their lives will be more difficult in the city.
Beppu: So the government is trying to move millions of people from rural areas to big cities. But it seems that finding jobs for all of them, well that seems easy to say but difficult to do.
Fukushima: Yes. Attracting companies is one challenge, and they'll be looking for people with technical skills and experience. So the situation could be extremely difficult for farmers. And if this strategy fails, all this massive investment could end up creating ghost cities.
But we need to keep in mind that China's leadership is setting in motion a gigantic shift. It wants to steer the economy away from exports, towards a market driven by domestic demand. That's the main goal of structural reforms -- very ambitious, and also extremely challenging.
Beppu: How do observers outside China see the situation there? Is there any room for optimism in this climate of global instability?
Fukushima: Well, many investors worry a slump in China could drag the global economy down. Some observers are even talking of a possible hard landing, meaning a sharp fall that could trigger social unrest. Among them is George Soros, one of the world's most famous investors. In January, he told the World Economic Forum in Davos that a hard landing is "practically inevitable" for China.
But not everybody agrees. I had a chance to meet with Jim Rogers, who was in Tokyo this week. He co-founded with George Soros the Quantum hedge fund, back in the 1970s. Rogers is now based in Singapore, where he tracks the performance of Asian economies, and he's more upbeat about China's prospects in the long run.
Rogers: Yes, China is slowing down, but remember, China is a victim. The rest of the world is slowing down. Japan is in recession, according to your government, and you’re one of their largest trading partners. Korea is having problems, and many parts of Europe are having problems. So when your trading partners are having problems, you have problems too. So of course China is slowing down, but the whole world is slowing down.
Fukushima: How do you look at China’s data?
Rogers: No I don’t trust any government data, but if you go to a country you can see something especially if you go more than once. If you look at companies from the ground up, you can find investment possibilities, and you can find some things that are doing very well. I would suspect you’re going to see some hard landing in some parts of the Chinese economy such as property. Beijing for a while was trying to cool property off. You go to Chinese cities, you see there’s over-building in much of the economy. But if you’re in the healthcare, you’re not slowing down. China needs lots more healthcare, and better healthcare.
Obviously if I see that China is going to fall apart or something, then I probably wouldn’t invest there, but I don’t see that happening. But I do see companies that will be doing well in China and other countries.
Fukushima: How about the prospect for China’s economy, short-term and long-term?
Rogers: As the world has problems in 2016 and 2017, many parts of the Chinese economy are going to have problems. You’re going to see bankruptcies, I hope -- at least they say they’re going to let people go bankrupt who are overextended. Bankruptcy is good for the world. It’s like a forest fire. Forest fires are horrible. They’re terrible. But in the end, they clean up the underbrush, they clean out the dead wood, and the people who survive can grow even stronger and better.
So bankruptcy and economic slowdowns are not fun, but historically in the end have been better because companies and countries come out stronger on the other side. So you’re going to see those kinds of problems in China. Do not let anybody tell you that it’s not going to happen. But again, it’s going to clean out the Chinese economy, and the companies that come out the other side will be better and stronger. So if you own Chinese shares, don’t sell them.
Fukushima: Of course, Chinese leaders firmly deny the possibility of a hard landing. But there's no doubt the coming 5 years will be extremely challenging, and people around the world will be watching closely, because the stakes are very high.