BEIJING — It is clear that efforts to boost confidence in China's sluggish economy will top the agenda of its formal National Assembly session this week.
As China's workforce ages, relations with Washington are strained and housing construction, a key driver of the economy, is in crisis, it's unclear how the ruling Communist Party can navigate strong, sustained growth.
Hopes for a strong, consumer-led recovery after strict anti-virus restrictions end in late 2022 have not materialized. Local governments are saddled with trillions of dollars in debt and foreign direct investment in China has fallen by about 80% in the past year.
As more than 5,000 leaders from across China gather in Beijing for the biggest political event of the year, the mood on the streets and in financial markets remains subdued.
This is in contrast to the official message marking the 75th anniversary of the founding of the People's Republic in 1949.
„We believe in consolidating and promoting the recovery and growing trend of the economy,” the party newspaper People's Daily wrote in a commentary on Saturday.
„We are fully capable of turning pressure into a driving force, accumulating benefits, transforming them into successful trends, fighting the winds and waves and steering the progress of the great ship of the economy,” it added.
For videographer Wang Tao, the question is what leadership will do about jobs. At 41, he's struggling to find work in a labor market where companies don't hire people over 35.
„At first I thought it was only difficult for old people like me, but later I found out that many young people … are struggling to find a job,” Wang said. „The general employment situation is dire.”
Congress approves decisions already taken by top leaders, provides a platform to publicize government programs and advise officials on what they need to do back home.
China's most powerful leader in decades, Xi Jinping, is at the helm. He has installed loyalists in high positions to strengthen the party's control over the economy and society. Xi, 70, is in his third five-year term as party general secretary and could hold the post for life.
Premier Li Keqiang is expected to announce the official economic growth target when the National People's Congress convenes in Beijing's ornate Great Hall on Tuesday. It will be 5%, compared to last year's 5.2% growth, according to state media.
Many economists predict much slower growth of 4% or less. By 2022, it will drop to 3%, the second-lowest level since at least the 1970s.
Li's annual mission statement included „promoting high-quality development and advancing Chinese modernization,” the official Xinhua news agency reported.
Many in China believe that will mean more government spending, said Logan Wright of the Rhodium Group, an independent research firm.
„Everybody will look at whether there's a significant financial incentive being offered,” Wright said. But cost alone is not enough. „Now is the time to solve short-term problems and prevent them from becoming long-term problems. So what's the plan?” Wright said.
The slump in the property market followed excessive borrowing by real estate developers. Dozens defaulted on their loans. The largest, Country Garden, faces liquidation proceedings. Another, China Evergrande, is liquidating with more than $300 billion in debt.
Falling tax revenue from property sales also weighs on the financial system. To encourage more asset lending, the central bank has cut its five-year prime lending rate. Several cities have eased restrictions on property deals previously imposed to cool price bubbles, and around 6,000 property projects have been given the green light to lend.
„The property market has been a significant source of growth in China, and now that has reversed,” Wright said, although he noted that there are signs the market is stabilizing. „If you look at how China is responding to this, it indicates a more severe slowdown than the official data suggests.”
As anti-virus restrictions led some cities to shut down for weeks, the shocks of the pandemic deepened problems and factories ended up with major setbacks. Now, instead of rising prices, China is trying to prevent a potentially debilitating cycle of deflation or continued falling prices.
Exports, another key driver of growth, fell in 2023 for the first time in seven years, defying forecasts that the US economy would fall into recession.
Despite official signs that China's years of antitrust and data protection crackdowns on tech companies have ended, entrepreneurs remain dismayed. Many small businesses complain that they cannot collect the bills they owe, and bankruptcies have risen.
Meanwhile, global companies are shifting investments to countries such as India and Vietnam to reduce the risks of Sino-US political tensions and the party's tight domestic controls, which sometimes include raids on the Chinese offices of foreign businesses.
„The system is not that transparent, and the lack of transparency creates a lot of uncertainty,” said James Zimmerman, a lawyer and former president of the American Chamber of Commerce in Beijing. „This is especially true when it comes to national security issues, where doing due diligence research can land people in jail.”
Xi's talks with President Joe Biden and U.S. business leaders at a regional summit in San Francisco in September conveyed the message that „China is open for business,” Zimmerman said, „but his presentation lacked any specifics.” Reform and knowing what kind of changes are going to happen gives people a comfort level.
These challenges come during times of transition.
China's labor force has been shrinking for more than a decade, putting pressure on an economy that still relies on labor-intensive industries. With home prices falling and stock prices faltering, even middle-class families are struggling to spend.
Jiang Yingzhi, a seller in Beijing, said, „The spending power is worse than before, and maybe we didn't make money during the epidemic.
One strategy, says Michael Pettis, a leading expert on the Chinese economy and professor at Peking University, is to shift more national wealth into the pockets of workers.
„The problem in China for the last 10 years has been the same problem … that is domestic demand is very weak because of consumption,” he said. Meanwhile, overinvestment in construction yields diminishing returns.
„So this year is really a year in which they're trying to find those inequalities. They want to increase consumption. But it's very difficult to do that because it involves a huge redistribution of income,” Pettis said.
Concerns that China may try to talk its way out of its troubles are already raising alarm in the United States and Europe as Chinese banks ramp up lending to manufacturers of electric vehicles, solar panels and other industrial products. The issue has already figured heavily in talks between Beijing and Washington.
„If you're producing more and more and you're not consuming it, you need trade surpluses to absorb it,” Pettis said.
Some Chinese localities are trying another approach, creating affordable housing projects that invest in unoccupied apartments. Such a move would combat growing inequality and free up more income for spending.
„I think it should be a mix of short-term and long-term measures,” said S&P Global's Asia-Pacific chief economist Luis Guijs. „I think anything that can increase momentum in the economy is helpful.”
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Associated Press video producer Wayne Zhang contributed to this story.
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