CSIS Press Briefing: Previewing China’s Annual ‘Two Sessions’

This transcript is from a CSIS press briefing hosted on March 3, 2025.

Alex Kisling: Hello everyone, I’m Alex Kisling, vice president of communications at the Center for Strategic and International Studies. Welcome to this CSIS press briefing previewing China’s legislative gathering known as ‘the Two Sessions.’ Today we have a lineup of CSIS experts who will share their expectations and analysis on the foreign economic and climate policy implications of the meetings, as well as how they see domestic Chinese politics playing into their likely output.

Just a couple of housekeeping notes before we get started. Each of our speakers will offer several minutes of introductory remarks after which we’ll turn to your questions. If you want to ask a question you can type it into the Q&A window or raise your hand to ask it verbally. If you are on a mobile phone, you can press star-nine to raise your hand. We’ll also be distributing a transcript of today’s call shortly after its conclusion, and the transcript will also be made available on CSIS.org.

With that, let’s go ahead and get started. I’ll turn first to my colleague, Scott Kennedy, CSIS senior advisor and trustee chair in Chinese business and economics. Go ahead, Scott.

Scott Kennedy: Thanks, Alex. Good morning, everyone.

Welcome to this preview of the NPC – China’s two sessions. The two sessions stands for China’s National People’s Congress and the Chinese People’s Political Consultative Conference. The NPC is China’s legislature and the CPPCC is China’s top advisory body. And the two of them meet in parallel every March. The CPPCC this year is meeting from March 4th to March 10th, and the National People’s Congress will start meeting on March 5th and conclude its session on March 11th. That 11th date has not been formally announced as a conclusion, but Chinese – Beijing’s traffic controls are supposed to end on that day, so that’s the clue of when that ends. (Laughs.)

Let me just provide a couple overarching remarks about what’s important this year, and then I’m really delighted to be able to turn to my colleagues, Brian Hart and Ilaria Mazzocco, for additional analysis about security, foreign policy, technology, and other issues that the Chinese leadership are trying to tackle.

This is the 13th two sessions that Xi Jinping has overseen since he came into power at the end of 2012 as the head of the party, and in early 2013 formally as president of China on the government side. As in most years, the dominant focus of the two sessions will be on economic issues, but the overall agenda is really tightly focused this year on a small number of things. The real big, overarching issue this year, as I see it, is that it’s – is that the Chinese population, the rest of the world, believes it’s finally time for China’s policymakers to deliver on economic policies that help growth to rebound.

Since the pandemic Chinese growth has slowed significantly as a part of – a result of the pandemic itself; as a result of worsening relations with the rest of the world; as a consequence of China’s housing crackdown, which has really reduced the value of most homeowners’ assets.

Consumer confidence has been extremely weak for the last several years. It has not rebounded. Last September the leadership began to turn in a more assertive way to try and generate greater growth with a stimulus plan that they announced at the end of September, early October. But that has really not taken hold. There have been some shoots of growth, increase in domestic travel, some areas of consumption, some private investment. But overall, the economy is still not doing well.

And this – in December China, the Communist Party, had its annual central economic work conference, where they laid out an analysis that showed that there were significant challenges that had to be met. And it basically signaled that by the holding of the two sessions, they would roll out a whole series of policies that would address these challenges. And I think now the question is, are they really going to live up to those expectations or not?

The biggest challenges that China’s economy has are on the consumption side. Chinese consumption is only 39 percent of GDP, much lower than in other advanced economies, 50 to 60 percent, or even, in the U.S. case, above 70 percent of the economy. The Chinese government’s view has been that the problem is that there’s not been a sufficient supply of high-quality things for Chinese people to consume and that if they provide greater supply of these products and services, consumption would go up.

And I think we’re going to see, in this NPC session, continued emphasis on providing greater supply of high-quality consumption goods. We’re going to see a continuation of their trade-in program of spending for industrial upgrading. We’re going to see them expand the willingness to have a larger fiscal deficit, up to 4 percent. And we’re going to see the announcement of long-term bonds, 3 trillion in national-level long-term bonds, 4 (trillion) to 5 trillion in local government bonds. And all of this will have some effect on growth and consumption.

But the party and the leadership has held back in addressing the demand side of consumption. And that is – Chinese consumers and households engage in discretionary – precautionary savings, because they don’t have enough support for education, for health care. The value of their houses has dropped dramatically. And as a result, Chinese – the savings rate of Chinese is still extremely high. And until there is sufficient social safety net and addressing of these other concerns, we’re not going to see that consumption rise as it needs to.

So I think what economists and others watching will see is to what extent is the party and the officials who meet at the two sessions willing to expand investment in the social safety net to reduce the need for precautionary savings.

A couple of final points. The official agenda is – besides addressing these things, they’re going to – China has a private-economy promotion law which it has been debating and working on for some time. That will be on the agenda for the deputies to discuss, as well as civil aviation law. Those are relatively boring texts, which is not where the heart of the action is going to be. It’s going to be on these specific measures to address the economy.

Let me make one final point about U.S.-China relations. I know Brian and Ilaria have views about this as well. Foreign policy is typically not central, but it is a background factor that is shaping the mood at the two sessions. I think Xi Jinping and the leadership views that the domestic challenges China has are more important than those challenges that they face with the United States.

That said, from Xi Jinping’s view he feels relatively confident. China’s made a lot of success in technology over the last few years, most recently with DeepSeek. China and the leadership are not desperate for a deal with Trump. They want – if they’re going to reach a deal, they want it to benefit China and not just be a one-way list of concessions from Beijing to Washington. So we’ll see how that goes. If for some reason they don’t get a deal and there’s escalation, the Chinese are ready to escalate. We’ll see what happens with tariffs tomorrow that the president most recently announced that he would add. But we have to be prepared for both the possibility of a deal or escalation. I think the Chinese are ready to go either way. They feel they’re in a much better position than they were in the – during the first Trump administration.

So let me stop there and hands things over to Brian.

Mr. Kisling: Thanks, Scott.

Next we have Brian Hart, deputy director and fellow with the CSIS China Power Project. Brian, over to you.

Brian Hart: Thanks, Alex. And thanks, Scott.

You know, just to start off, I think, just as Scott said, you know, the real focus of the two sessions is on economic policy and domestic issues. I think foreign policy is not – foreign policy and security issues are not typically front and center of the two sessions, and I don’t think that we should expect that to be the case this year in terms of, you know, new groundbreaking policies in those areas. But they – as Scott said, a lot of the decisions being made and announced at the two sessions are taking place in the backdrop of so much that’s going on in the world, especially heightened U.S.-China tensions, the war in Ukraine and developments there, you know, conflicts in the Middle East. All of that is still in the minds of Chinese policymakers as they make these decisions.

And I would also add that more than ever economic security and national security are really intertwined, and that’s true for I think both Washington and Beijing. And so I think that even as these decisions are made on the economic front, I think many of those decisions will be viewed here in Washington as part of a broader – you know, in terms of broader U.S.-China competition. But with that said, there are important things to watch in the coming weeks on security, foreign policy, some on Taiwan, and also on U.S.-China relations. And I’ll just kind of run through some of those quickly.

So I think, first up, the thing that we always look for at the two sessions is new figures on defense spending. So for most of the last decade we’ve seen that the budgets released show defense spending increase by between about 6.5 to 7.5 percent for most years over the last decade. And really in the last several years it’s really kind of stabilized at about 7.2 percent annual growth on the official budget. And so last year that amounted to 1.67 trillion yuan, or about $231 billion. Of course, it’s really crucial to note that China’s actual defense spending is broadly believed, by outside analysts, to be significantly higher than is announced in that official topline budget figure.

You know, some figures from places like SIPRI put that actual figure, you know, maybe around 30 percent higher. Other figures that factor in things like purchasing power, have tried to, you know, get a more realistic understanding of defense spending. And some of those estimates put it at two or even three times higher than the official figure. So there’s quite a lot of debate about what China’s actual defense spending is, but I don’t think that there is debate that the actual value is significantly higher than what Beijing announces during the two sessions. So I think it’s important to note that.

We’ve also seen Chinese officials pretty consistently every year note that China’s defense spending is lower than most of the world when it comes to GDP, and that China’s defense spending is broadly linked to economic growth. So I think, given those two things, I think it would be very significant if two things – if one of two things change. If they significantly deviate from that roughly 7 percent growth rate, either above that or below that, I think that that would be significant. And I also think it’d be significant if we see those officials drop their long-held claims that defense spending is linked to GDP. I don’t – I don’t anticipate seeing them change those things, but those are certainly things to watch.

Moving on to Taiwan – obviously, a critical issue in terms of tensions between the U.S. and China – I think there’s a clear pattern in recent years that China has drawn down its military activity around Taiwan during the Two Sessions.

If you just look at the daily number of, you know, incursions into Taiwan’s Air Defense Identification Zone, the PLA activity around Taiwan, at least what’s reported publicly, consistently drops during the Two Sessions and I would expect that to be the case this year. If that doesn’t happen I think that that’s telling.

It’s worth noting too that over the last year in 2024 Chinese incursions into Taiwan’s ADIZ increased dramatically around 80 percent from the previous year as China has ramped up military pressure on Taiwan since William Lai came to power in Taiwan last year. So that would be something to watch. If that is – if that does change from previous years I think that that’s notable.

It’s also worth mentioning some of the backdrop conversations on Taiwan going on. So in recent weeks Wang Huning, who’s a member of the Politburo Standing Committee and a chairman of China’s CPCCC, if I get that acronym correct, you know, convened a conference on Taiwan affairs, which is typical of this time of year, and there were a couple notable things from what he said.

He called for firm opposition to external interference and stressed efforts to consolidate the international community’s commitment to the “One China” principle. That focus on external interference is a clear sign that he – you know, he and the party want to push back against the United States and others which they view as intervening – interfering in Taiwan, which Beijing views as a domestic issue.

So that was notable, and I think more important from that conference is he did not include in his statements – at least what was available in the public readout he did not use the phrase promoting peaceful development of cross-strait relations whereas in past couple of years he did use that phrase at that conference.

But I don’t think we should read too much into these right now. You know, this Taiwan war conference and the broader Two Sessions are not really places for Beijing to announce any significant shift in Taiwan policy. It’s just not the venue where they’ve done that and I wouldn’t expect that this year.

It’s also worth noting that, you know, we’ll likely be poring over the government work report that Li Qiang delivers to see what it says on Taiwan and, you know, in the past there have been some concerns that things like peaceful unification didn’t appear in that – in recent years.

But, you know, in the subsequent statements by, you know, more important people like Xi Jinping made clear that peaceful unification was still a part of the talking points. So I wouldn’t read too much into some of the specifics on Taiwan that come from this Two Sessions unless there’s something dramatic which, again, I don’t anticipate.

Where I do think some of the most important things will come out are the separate meetings along the sidelines of the Two Sessions, especially Xi Jinping’s sessions. So, you know, he sets the tone on foreign policy and it’s his show when it comes to foreign policy and national security.

Xi always attends several sessions alongside the Two Sessions with, you know, provincial delegations as well as some industry groups and he always every year meets with the PLA and People’s Armed Police delegation to the Two Sessions, and those have been places where he has in the past said some significant things on – and given important speeches on security and foreign policy issues.

I think one of the most notable examples of that was in 2023 amid the backdrop of a really tumultuous year in U.S.-China relations when you had China staging unprecedented exercises around Taiwan in August 2022 followed by new U.S. chip controls on China as well as the 2023 balloon incident.

That year amid really high U.S.-China relations Xi Jinping said during the Two Sessions that Western countries led by the United States have implemented all-around containment, encirclement, and suppression against China. Those are really significant statements by Xi Jinping, not only because they took place at the Two Sessions where, you know, these things are not necessarily always discussed but also he – you know, he called out the United States by name, which is not something that Xi Jinping often does.

So that was a clear sign from Beijing of how concerned and, you know, angry they were at the situation with United States. So I think that’s certainly something to watch to see what language Xi Jinping uses, you know, at his sessions this year. A couple of things I’ll be watching to see what he says.

Does he mention the U.S. by name this time? Does he explicitly or implicitly discuss the trade tensions with the U.S.? As Scott noted, President Trump has called for an additional 10 percent tariffs, which are going into effect essentially right as the two sessions are starting. So will there be pressure for Xi Jinping to personally respond to those and take actions? Or will he kind of delegate that? Will that be something that he leaves more to Wang Yi, will be an important thing. One not crucial thing that I’ll be looking for, but I think that would be noteworthy, is whether Xi Jinping uses this phrase that he has repeated off and on over the years which is that the East is rising, and the West is declining.

There’s been a lot of triumphalism in the last couple of weeks due to the success of DeepSeek in terms of AI. You know, this is, from the Chinese perspective, really flipped the script, showing that despite U.S. export controls and technology controls China is making significant advances in technology. In a meeting with private entrepreneurs in recent weeks, Xi said: In the long term, the east wind is still prevailing. That, again, was this sense of triumphalism. It’ll be interesting to see whether Xi repeats that kind of talking point here at the two sessions, which is a very important political gathering.

And then finally, on just, you know, does he mention Taiwan? And does he say peaceful resolution or peaceful development of cross-strait relations? Also I’m curious to see what he says at the PLA and People’s Armed Police forum. Does he mention corruption? There’s obviously been very sweeping corruption issues and scandals in the last year or two in the PLA and so it’ll be notable if he signals further work on that front, that more corruption campaigns are to come. That’s another thing I’ll be watching.

And then two final points. One is that I think the last big thing that we’ll probably look for on foreign policy is Wang Yi – Foreign Minister Wang Yi’s press conference. Again, the question to me is to what extent Xi Jinping personally weighs in on some of his statements versus what he delegates to Wang Yi to stay on these. Given all of the developments along the war in Ukraine. I do expect Wang Yi to mention those and to, you know, provide some statement on China’s stance on the recent developments between the United States and Russia and the United States and Ukraine on that issue. But I wouldn’t expect any fundamental policy shifts on foreign policy to come from this.

And then the final thing I’ll say, as I – you know, as I mentioned at the top of the call, made in China – economic and security issues are really intrinsically linked, and especially in terms of China’s relations with the United States and other countries. So one thing that I’ll be crucially watching for is whether there’s a replacement for Made in China 2025. So, you know, this was announced 10 years ago as this large industrial upscaling effort. And, you know, it’s – we’re essentially coming to the conclusion of that period. So it’ll be interesting to see how Beijing casts its successes and any lagging areas on Made in China 2025, and to see if this year they announce a replacement for that.

You know, that’s particularly interesting because really in recent years, due to the tensions with United States and Europe and other countries over economic trade issues, Beijing has really kind of clamped down on mentions of Made in China 2025 explicitly. It’s become something that has continued, policy wise, but has received less attention. So it’ll be interesting to see the extent to which they bring it up this year, and the extent to which they replace it with something. And if they do replace it with something, what does it look like, and how is it branded?

I do wonder if they will try to make it not quite as branded as Made in China 2025 was, to avoid it being a target for, you know, U.S. and other countries responding to it. But at the same time, I do think that Beijing clearly wants to signal where its priorities are going forward on industrial manufacturing, science and technology issues going forward. So it’s a balance for them in terms of how they want to cast it domestically versus how much they really want to attract attention to it globally.

I think there will be other things to watch on these fronts, but I think for now I’ll just wrap it up there. And happy to get into things in questions, but I’ll turn it over to Ilaria.

Mr. Kisling: Brian, thanks so much. We’ll turn it next to Ilaria, after which we’ll turn to everybody’s questions.

(Gives queuing instructions.)

So, without further ado, our final speaker is Ilaria Mazzocco, deputy director and senior fellow with the CSIS trustee chair in Chinese business and economics. Ilaria, over to you.

Ilaria Mazzocco: Thank you, Alex.

So I think Scott and Brian have covered a lot of ground. I’ll just note a few things that I’m watching that I think will have our domestic policy but have global implications, both for global governance and for tech competition.

So on the global-governance issue, I think, you know, China’s really poised to – I guess, you know, one way to think of it is the climate-leadership position for China is China’s own to lose. And the way that China could lose it is by really not taking action on coal and coal consumption.

I will note that, you know, the 15th five-year plan is going to start next year, and that’s the timeframe in which China has sort of indicated that carbon emissions would start to decline over this period. So really that’s going to be linked to actual coal consumption in the country. And I think, seeing what language is used, I don’t actually expect to see dramatic changes. There’s very little pressure at this point internationally for China to actually take much action, especially with the U.S. sort of pulling back on the initiatives, pulling out of Paris, challenges in Europe on this front.

I think, you know, there’s not a ton of pressure. But I think this has big implications also for international trade. I mean, ultimately we know that the transition – the energy transition will have winners and losers. China certainly has a lot of winners, and I’ll talk about that in a second. But if the losers are not actually going to start losing and are allowed to sort of export their way out of this, it’s going to be very difficult and continue to have, you know, implications globally and create trade tensions and also make the actual energy transition harder to achieve.

So I think just sort of seeing whether or not we see any changes in language on coal, it was – you know, its crucial role for the economy was noted in last year’s report. So, you know, seeing if that changes this year will be interesting. I don’t – as I said, I don’t expect there to be dramatic changes, but it will be something to track.

And I’ll note, you know, it’s difficult – usually countries tend to not take dramatic action on climate when their economy is not doing very well. And as Scott has mentioned, there’s huge challenges for reviving consumption in China.

One thing that, again, will be interesting to see if we see any specific notice on this is the trade-in programs that have been implemented since last year, which are supposed to stimulate consumption. I expect that these will – could have – these could have significant impact at the sectoral level, right. This is probably not going to be enough to actually turn around the economy. But for certain sectors it could be significant. Certainly the automative sector is one of those. And I think, you know, we’ll see whether or not that is linked at all to any industry-consolidation efforts, which is, I think, you know, something that’s going to be really important specifically for the automotive sector, but some other industries as well. And again, this then ties back to the issue of industrial policy and China’s external trade relations.

Another thing that I will be keeping an eye out is whether or not we see any language on Chinese foreign-direct-investment outflows and, you know, potentially even tech transfer. This is becoming really sort of a crucial point in negotiations and conversations between Chinese, for example, and the European Union, and certainly some other developing countries.

So seeing whether or not there is any note in reference to this, it is – there seems to be a lot of reporting that in Beijing itself there’s mixed views on trend, as, on the one hand, it helps reduce trade tensions potentially, but on the other, it could risk defusing China’s technological advantage in some industries. Again, I would point to clean tech as really an industry where China has very strong advantage – you know, electric vehicles, batteries, solar panels, et cetera.

One other area that I’m keeping an eye on is AI, the AI+ initiative, sectoral applications of AI. I think, you know, the Chinese leadership is going to go into these – you know, the meetings with pretty strong confidence on its AI position thanks to DeepSeek’s success. We’ve seen, you know, over and over again indication that the expectation of the leadership, the strategy of the leadership, is to utilize renewed investment in high-end technology to stimulate productivity across the economy. And AI is you know, the general-purpose technology par excellence, and one that could have the potential to really stimulate the economy and, you know, improve productivity. And I think we’ve seen an effort on the part of the government over the past few years to sort of try and incentivize industries to adopt more both AI usage, but also digitalize production. Certainly in the manufacturing sector we’ve seen efforts to do this. And so I think seeing if there’s any reference to that and what exactly – there will be reference to this, and actually what is said will be interesting. I do expect that we’ll see a significant push over the next year.

I will note, you know, there’s been a very techno-optimist position and view in China, specifically in the party. So I don’t think there’s been very much thought about the negative consequences for employment due to AI deployment. And again, I don’t really expect to see any notice or any reference to this in the – in the – certainly in the work report, but you know, that’s just something to keep in mind.

Finally, I don’t expect the BRI to expand significantly. I think that it will be noted in the work report. Interesting to see if it comes up at all in Xi Jinping’s speech. But I think there’s been a lot of talk about, you know, China replacing the U.S. globally as, again, the U.S. pulls back from its foreign aid initiatives, USAID and other U.S., you know, engagements on this front. I don’t expect China to really dramatically increase its engagement. In fact, I think over the past few years we’ve seen really sort of a restructuring and more modest approach to foreign aid. But that’s, again, another area to watch.

Finally, a wildcard on something that I’ve been looking at that’s not necessarily central. And I agree with Scott that really the central topics here are going to be consumption, the macroeconomic environment. But this is something that is going to be something that many countries are going to be looking at, I think, increasingly over the next few years, and it’s this natural disaster management, resilient infrastructure, you know, basically all the things that would naturally fall under the climate adaptation bucket. This is going to continue to be an issue both for China and many other countries, and we know China is very climate-vulnerable. So there, I think, it – there are areas where we do traditionally have a focus of the – of the work report – so, you know, food production and food security, energy security, natural disaster management. So I think, you know, seeing whether or not we see any increased coordination across these areas and investment will be notable.

I mean, I think we all know that, you know, for decades climate scientists have been warning that if we hit 1.5 Celsius we would see increasingly unpredictable climate events, and I think we’re basically at that point. So I think this is something many countries will be watching, and we know that China has had investment in these areas, but they have been pretty patchy. So seeing whether or not we have more of a priority in the approach moving forward will be interesting.

So that’s – I’ll stop there for now.

Mr. Kisling: Thanks so much, Ilaria. And thanks to Scott and Brian for your insights as well.

At this time we’ll go ahead and open it up for questions.

(Gives queuing instructions.)

So I see we have a couple of questions in already, and I’ll try to take them in order here. Scott and Brian, maybe this first one is for you. And, Ilaria, feel free, of course, to weigh in as well. The question is: I think I saw a recent change in the language on the U.S. State Department website regarding Taiwan. If so, what are the implications of that? And also, just a note on potential tariffs on pharmaceutical imports to include upstream ingredients. That was from Al Gabor. Thank you for that question, Al.

Scott, Brian, do either of you want to weigh in there?

Dr. Kennedy: Hey, Brian, why don’t you tackle the Taiwan one and I’ll tackle tariffs and a couple other things.

Mr. Hart: That sounds good.

Yeah. Yes, there have been changes in terms of what was the U.S. policy description on the U.S. State Department website. This is something that, you know, does happen when we have changes of administration; the State Department will change some of the language on some of these key issues. Taiwan is always one of the first ones that people look to.

I do think – you know, we’re only a month into the administration so I think it’s impossible to read entirely too much into it – into what exactly that means. But I do think it signals that the Trump administration is thinking about the Taiwan issue and, you know, will be focused on pushing back against the PRC and assessing what needs to change in U.S.-Taiwan policy. I don’t – you know, this change so far doesn’t mean that there has been a decision made on what exactly U.S. policy is on Taiwan, in terms of changes from previous administrations, or including from the previous Trump administration.

So I think we’re still waiting to see exactly how the administration casts this, and also how it casts its broader China strategy. We haven’t seen any official, you know, major speeches or documents put out about PRC strategy – the strategy on the PRC. So still some questions remain on that front. I think, from Beijing’s perspective, this is certainly seen as a concerning sign. And it’s something that they are – you know, will push back against. And so, yeah, I think right now it’s too soon to tell exactly what it means, but, yeah, Beijing is not happy about the change.

Dr. Kennedy: On the question on tariffs, there’s also a couple questions on the 15th five-year plan. So why don’t I take these together, if it’s okay with you, Alex.

I think the – you know, the Trump administration, in response to the fentanyl issue, increased tariffs by 10 percent across the board. And they have – for some reason, the president over the weekend said that China is still not responding sufficiently to that issue, and is generally dragging its feet, so tomorrow he’ll increase tariffs another 10 percent across the board. I haven’t heard about any kinds of exemptions for those tariff increases so I would expect them to apply to pharmaceuticals and APIs and related chemicals, as much as they would apply to anything else.

We know that April 1 is the deadline for a series of reports and reviews related to the America first trade policy executive order that came out on day one. And so that could trigger a whole variety of other kinds of moves towards tariffs and restrictions. We’ve also seen the memo that was issued a week ago Friday on investment. And so I think there’s a whole variety of kinds of restrictions that the U.S. is likely to impose, is considering imposing, and those very well could apply to pharmaceuticals as anywhere else. That’s just on the standard trade and investment front. And, as you know, the U.S. has also been evaluating economic security issues like data security, which could apply to pharmaceuticals as well. So I think we’re still in early days in terms of potential restrictions the administration could impose.

A couple questions came out on the – related to the 15th five-year plan. So China is in the final year of the 14th five-year plan. Five-year – China still has five-year plans. Traditionally, these were part of a top-down state planning system where China not only set targets, but also, through administrative means, allocated resources across the system to different institutions on what they were supposed to spend. China, although it’s still got a lot of government regulation and control of the economy, actually, there are a lot of market elements to the economy. And the five-year plans are indicative plans. They are meant to set broad goals that act as incentives to push parts of the central government, localities, and businesses to work toward those goals. So less explicit instructions and orders, more signaling is what the five-year plans are supposed to do.

They set targets for all of these five-year plans. And almost always they meet these targets. So these are meant to be targets that they can achieve, related to growth, related to employment, technological progress, the climate, urbanization, et cetera.

The 14th five-year plan that they’re about to conclude has tried to focus heavily on expanding environmental and climate goals, some of the things that Ilaria has touched upon. And they have hit those targets, even though they have not peaked with carbon emissions.

I believe that the new, 15th five-year plan that will take effect beginning next year, that is – they’re going to be evaluating concept for that plan during the two sessions, and in subsequent months look at drafts of that plan, and then eventually issue it. I do think that we should expect them to focus on targets related to raising domestic consumption and demand, in addition not only achieving technological progress but raising productivity. I think that Chinese are aware that just because you have more shiny tech products doesn’t necessarily mean that economic productivity has been raised. So I think they’re trying to – they will want to raise productivity as well. And then they’ll continue to try and expand on their environmental and climate goals as well.

So now the five-year plans are always about these goals. They’re almost never about the details of how to achieve them. That then comes along through government and party policies that are issued during the course of those five years, and the type of things that they will be discussing at the two sessions this week and next week.

Mr. Kisling: Scott, thanks. We have a question from Kitty Wang, I believe. So, Kitty, if you want to unmute yourself.

Q: Can you hear me?

Mr. Kisling: Yes. Go ahead.

Q: OK, yeah. This is a Kitty Wang with Radio Free Asia. This question is for Scott.

Can you just make a comparison between this year and the last year for Li Qiang, the prime minister. He’s going to report on economy. Maybe just, what’s the major – what do you see the major difference will be between this year and last year?

Dr. Kennedy: Kitty, we will have to see. We’ll have to read the report when it comes out on –

Q: I think there’s some preview about that for the – because Xi Jinping hosted, I think, a CCP central government session on that. I just saw some media preview about that.

Dr. Kennedy: OK. Well, Kitty, I’m happy to give you my view on this. And if you want to have an additional view – I’ve not seen that preview.

Q: OK.

Dr. Kennedy: So, in any case – so my view is I want to – I would like to see the text of the full government work report that is issued on the 5th, when Li Qiang gives it, and then compare them. I know last year’s government work report was very tentative. It tried to say that everything was going fine. It didn’t have dramatically changed goals from the year before. I think Li – I think there’s a big question about whether – how powerful Li Qiang is and whether he is really shepherding economic policy, or whether he has to defer to Xi Jinping. It seems, for the most part, that he is Xi’s deputy and carrying out the guidance that comes from the party.

So I do think that they – based on the Central Economic Work Conference that they had in December and the broader discussion one sees in the Chinese media – that they are going to be focusing on raising domestic consumption. There was just a reprinting of a speech that Xi Jinping gave at that Central Economic Work Conference in December in Xiaosure (ph) focusing on domestic consumption. So I think, to me, that’s a big signal of what they’re likely to emphasize.

Q: OK. Thanks.

Mr. Kisling: Thanks, Scott. And thanks, Kitty.

Our next question here probably best directed at Ilaria. And I’ll just read it off, from Eleanor Randolph, about: So much of China’s climate investment and action is spearheaded by local governments whose revenues are drying up. Do you think there are potential economic changes or plans in the coming year that will empower or constrain local governments to implement or enforce more climate adaptations, investments, or progress? So, Ilaria, why don’t you take that one?

Ms. Mazzocco: Yeah, absolutely. And I think this is a broader problem for industrial policy in China, actually, because a lot of it is carried out by local governments.

I think a couple of things to look at. The first is actually on when you’re – you know, one can distinguish a lot of different types of climate action. When we’re looking at actual infrastructure, construction renewables, the deployment has actually continued to grow. China continues to break through every record that there’s been on deployment of solar and wind, as well as, you know, fields of electric vehicles, construction of charging infrastructure, batteries, et cetera.

So I think, on that front, the, you know, constraints on local-government finances have not been an issue so far. In fact, now the problem is that they built so many renewables that the actual grid transmission infrastructure has not kept up. So I think that’s going to be a focus over the next year or so is actually making sure that the grid can absorb all these new renewables, which is going to be crucial to actually ensuring that they can replace coal and, you know, fossil fuels.

I think one thing to look at is the fiscal-deficit ratio, which I think, as has been noted before, is expected to be increased. So that should – you know, fiscal spending should increase. There’s been a lot of language over the past year about reforming tax revenues, you know, the distribution, how much local governments, you know, can keep and spend. We’ll see if we see any more progress on that. That’s something definitely to keep an eye on.

And then I think it’s going to be interesting to see and important to see how local governments decide to prioritize their spending. And there, I think, you know, things like the five-year plan, which, of course, is going to be developed over the next year or so, and also, you know, high-level speeches and, you know, language in government documents is going to be really important for how it signals to local bureaucracies, you know, how they should prioritize their spending.

And there, you know, it’s – you know, competition is not just within environment or climate projects, but also, you know, more broadly, industrial policy, social welfare, et cetera, right. There’s one pot of money, and local governments are going to have to decide how they spend it. And so there, I think, it’s going to be really important to see what the signaling is from the top.

So I think those are a couple of different things to look at. And then, yeah, I mean, of course, that’s always the problem in China is how local governments are actually going to implement things that are decided at the center. And, you know, their fiscal capacity is central.

Mr. Kisling: Thanks, Ilaria.

Next question maybe, Scott, you can take: Is there anything expected in terms of multilateral trade governance and China’s role in the WTO?

Dr. Kennedy: As Brian’s mentioned during his remarks, this is really focused – the two sessions are primarily focused on domestic issues. There’s some reference to defense spending, Wang Yi’s press conference, et cetera.

There is – to some extent there will be an effort to provide reassurance to foreign companies that do business in China, foreign investors, those that trade with China, to show that China is expanding its openness, that it’s, you know, expanded its negative list for investment in China, that it has expanded visa-free travel to China; very kind of practical measures.

It’s also trying to suggest that China’s a stabilizing force for the global economy, both in terms of sort of day-to-day operations as well as general commitment to global-governance institutions. And so this includes China’s participation in the WTO and that China believes that the world should, you know, use the WTO, the U.N. system, the WHO, Paris, et cetera, to address and manage global challenges.

That will be reassuring to significant parts of the world – developing countries that have extensive trade relations with China, others, watching the radical shift in American international economic strategy. At the same time, there’s going to be a lot of people who are not reassured by that because they believe that China has not adhered to many of its WTO commitments and that when it has lost cases, it hasn’t sufficiently and quickly enough adopted changes, and that, in fact, China – the WTO is insufficient to manage doing business with a country that has so many nonmarket economic practices and policies.

So I do think from the – the messaging from Beijing will be that China is a stabilizing force for the global economy. I think domestic and global reactions will vary based on the prism through which they look at China’s role in the world and the effect on their own economies.

Mr. Kisling: All right. Thanks, Scott.

We actually have another good question here from Al and maybe one that all of our speakers could weigh in on in some fashion: Why do we think China is better prepared than under Trump 1.0 and where do we expect China to retaliate? Scott, I don’t know if you want to lead off and, Brian and Ilaria, if you have any thoughts.

Dr. Kennedy: Sure.

Well, first of all, it’s clear that Beijing feels it’s better prepared. One, it’s a larger economy than it was. It has diversified its trade and investments since, partly as a result of the tariffs that were imposed then as well as export controls and other things that have driven not only multinationals in China to diversify but Chinese companies to internationalize.

China has become much more technologically savvy and moved up value added chains and is less dependent on many kinds of technologies from the United States. I think in addition to that psychologically the Chinese have dealt with President Trump before. They understand his strategy of shock and awe and so they aren’t as worried or shocked themselves when the president says or does certain things.

And I think, finally, they are watching how the U.S.’ relationship with its allies and trading partners evolves and they’re seeing, of course, a growth in tensions between the U.S. and many others around the world, and simply by China not doing anything, just by sitting where it has been, they feel that they are gaining an advantage.

So, of course, China’s challenge is that it’s growing slowly at nowhere near where it could grow if it had better economic governance and policies. But from the leadership’s perspective they feel they’re in a better position than they were several years ago and that’s why we have not seen the Chinese, you know, offer huge concessions so far and why a deal still looks like it’s pretty far away.

Mr. Hart: Yeah. I agree with everything Scott just said and I’ll just add maybe a couple other points.

One thing is that I think Beijing has really spent the last several years honing its policy toolkit to increase its ability to respond to U.S. measures in the economic domain and so, you know, I think China really learned a lot from the first trade disputes under the first Trump administration and learned how to really prepare responses ahead of time.

So now you see when Trump – President Trump announces new tariffs China typically has very quickly a kind of metered out response that is from their perspective, you know, reciprocal or at least tailored to achieve their goal which has often at least – you know, so far in the new Trump administration I think Beijing has sought to show that they have the capability to respond but to not escalate and to leave room for negotiations.

So they’ve – again, they’ve really kind of set up the policy toolkit. One of the specific things I think we’ve seen them really focus on is leveraging the asymmetric advantage they have in certain areas. So, obviously, where the United States has been really focused in the last several years under the Biden administration and likely under the Trump administration is, you know, on export controls, on key technologies, things like chips, AI, that is an area where the United States has very significant leverage in kind of the high-technology domains and that has, obviously, been a challenge for China.

But China has, as you know, created a pattern of responding to those measures by focusing where it has strengths and, largely in the last couple years that has been in things like critical minerals. So, you know, announcing new export controls on gallium, germanium, other elements – you know, rare earth elements – things like that has been where it has seen it has significant advantage over supply chains and can kind of put some pressure on Washington. So I think that’s a strategy that they are playing out and will continue to do that.

The last thing I will say is I – you know, I’m not privy to all that – you know, to the – to the economic decision making going on in Beijing. But I do think that perhaps one of the reasons you haven’t seen them respond with major fiscal measures, so far, to China’s domestic economic challenges, is they are keeping some things in their salvo in terms of how to respond to Trump. I think there is a concern that if they unleash too much fiscal policy spending or too much stimulus, you know, too quickly, that would leave them without much capability to kind of juice the economy later, if the trade war really escalates. So I do think that they are trying to meter it out over time, in a way that still leaves them with plenty of options down the road. And I’ll stop there.

Ms. Mazzocco: : Not a lot for me to say. I think, you know, Scott and Brian have covered a lot. Think the last thing I would note, it’s also that the way in which the Trump administration has been basically waging trade wars globally, right – and I think in a much more escalatory and, you know, the breadth of the of the tariffs has been much wider, from a geographic standpoint – or, at least the threats have been – in some ways make – gives, de facto, China a stronger position, because it can potentially, you know, resolve some of its issues with some other trading partners – like Europe, I think, first among all – and at the same time, you know, it knows that the U.S. itself is going to be eventually dealing with tariffs and retaliatory measures on multiple fronts. So I think that’s probably something that they probably perceive as a strength, at least in the medium term. So I think that’s just one more thing to think about.

Mr. Kisling: All right. Thanks to all three of you. We’re just about to hit the hour here and I think we have one question remaining, which is actually a good concluding question. So anybody can jump in on this. Do you have any suggestions for sources to follow the two sessions? So if anybody wants to weigh in on that, and then I think we can – we can wrap here.

Dr. Kennedy: Sure. I can offer just a couple suggestions. Obviously, the first place to start is Chinese official media, just to understand what the Chinese are trying to communicate. The two sessions – although you have almost 3,000 National People’s Congress deputies and 2,100 members of the CPPCC there offering their opinions and comments – the sessions are really meant as a way to communicate the top leadership’s policy views and have those absorbed by everyone else. So reading Chinese official media, they will publish texts in Chinese and in English of the government work report and of the other documents that they will issue – that report on the state of the economy, of law and justice, of finance. So reading all of those.

Then, you know, CSIS and others will continue to follow the National People’s Congress session. And we are holding our own event on Friday, March 14th, at 9:00 a.m. to give our feedback on the results of the NPC. So you can turn back to CSIS at the end of next week for our reactions as well. And, of course, American media and others – and many of you who are on the call report as well – have reporters in Beijing following this close up. So I think there’s a variety of different ways to stay attuned to what’s going on.

Mr. Hart: Yeah, just jumping in. I guess two things. As I said in my – you know, in my kind of remarks, I think on the foreign policy and defense side of things, you know, of course, the government documents that they put out, the government work report and the budget, as Scott said, are crucial to read. But on the foreign policy and defense side of things, I think focusing on Xi Jinping’s kind of delegation meetings on the sidelines, as well as Wang Yi’s press conference, is the two really key places to watch in terms of getting the signals on those issues. And then, like Scott, I’ll plug some of the work that CSIS is doing.

One of the most confusing things about the two sessions – that comes out of the two sessions every year is the government budget. It is a beastly document that is really hard to understand. The China Power Project on our website, China Power website, we have a report that we update every year that basically breaks down China’s government budget. There are actually multiple government budgets. We explain the difference between them. We explain how, you know, the actual level of the overall debt – deficit is maybe different than is what is necessarily reported in the topline figures of the government budget reports. So that – I think if you’re – if you’re interested in understanding the budget both from the – the new budget that will come out but also some of the long-term trends in fiscal policy, I would really look at that resource going forward. And we will, as soon as we can, try to update that once the new budget is out.

Over.

Mr. Kisling: Thanks, Brian.

Ilaria, anything you want to add there?

Ms. Mazzocco: No. I think Scott and Brian have really given a pretty broad set of resources, so I’ll leave it at that.

Mr. Kisling: Right.

Well, we’re at the hour mark here. And I really want to thank our speakers and all of our participants for joining today and for all of the great questions. Please feel free to reach out to us at any time. We’re here to be a resource, so don’t hesitate. And as I mentioned at the top of the call, we will be distributing a transcript of today’s call and also posting it on CSIS.org.

So, with that, thanks again, everybody, and hope you enjoy the rest of your day.

Dr. Kennedy: Thanks, everybody.

Mr. Hart: Thank you.

Ms. Mazzocco: Thank you. Have a good day.

 (END.)