Paige Montfort: Thank you. Good morning, afternoon, or evening everyone, depending on where you’re calling in from. Thank you all for dialing in for today’s press briefing previewing China’s upcoming legislative session. China’s annual National People’s Congress is going to open this Sunday, March 5th.
And, as our operator stated, my name is Paige Montfort. I’m the media relations manager here at the Center for Strategic and International Studies in Washington, D.C.
I’m delighted to be joined today by my expert colleagues, CSIS Freeman Chair Jude Blanchette, CSIS Trustee Chair Scott Kennedy, and CSIS Senior Fellow Ilaria Mazzocco, who will each offer a brief synopsis of what to expect from the upcoming session. We’ll then turn to audience questions with the time we have left today, wrapping up around 11:00 a.m. Eastern. And then we’ll get a transcript sent out to you and posted to CSIS.org within just a few hours after the call concludes today.
There’s a lot to discuss, so let’s jump right in. I want to turn it over first to Jude Blanchette, our Freeman Chair in China Studies, to start things off.
Jude Blanchette: Thanks, Paige. And hello, everyone. Good morning. I’m the one who got us started late, because I couldn’t figure out the technology to dial in. So I apologize and I’ll make my remarks that much briefer, to keep time for colleagues on the line as well.
As Paige mentioned, the National People’s Congress meeting is going to kick off this Sunday. This is an annual event. This is on the side of the government, as distinct from the Communist Party. This is one of the highest-level convenings of the – of the government and its rubber-stamp congress, the National People’s Congress. It will bring together roughly 3,000 delegates, 2,977 to be exact.
And I’m going to let other colleagues discuss some of the factors relating to the economy, but just let me say as an overall remark that the NPC will do a number of things over the course of its convening. We’ll see the announcement and readout of the annual government work report, which is a summary of legislative achievements but also objectives for the coming year. We will also potentially see the announcement of a growth target. I’ll let Scott discuss that in more detail. We will see the election or the selection of the membership of the National People’s Congress Standing Committee, which is the body which meets regularly throughout the year to discuss upcoming and current legislation and, very importantly – and, again, Scott will discuss this – we’ll see, finally, the formal announcement of the leadership group across the state council.
So that would be premier, vice premier, state councilors, the heads of various commissions, ministries, who will be the head of the People’s Bank of China – the PBOC, the central bank – secretary general of the state council. We have some hints about who these individuals are, in many cases strong hints, but this is – we will finally see the full roster.
So this is a very, very important meeting. It is also where we’ll see a general temperature check from Beijing about how it’s feeling about the state of the economy but also about China’s position in the world. So it’s going to be important to look for signals.
Let me just talk about three, quickly, that I’ll be looking out for. The first is, as we saw at the recently concluded second plenum of the Communist Party Central Committee, we will see another big party-state institutional reform plan. These are not abnormal. The party has been running these big institutional reforms or restructuring since the start of the reform and opening period in the late 1970s.
But while many of these have been more fiddling at the margins, in 2018 we saw an extraordinarily big and thoroughgoing reform that saw the creation of entire new bureaucracies and ministries such as the State Administration for Market Regulation, or SAMR, as it’s often known, but we saw significant transfer of power vertically from the state council up into the Communist Party. So we saw party organizations take over roles that had previously been held by state council ministries and bureaucracies.
We saw the elevation of some party-leading small groups, which are coordinating bodies within the Communist Party. We saw those upgraded into commissions, which gave them both a de facto and a de jure expansion of their power. The indications are that the reform plan that’s going to be announced this year will be, roughly, equal in its importance.
While we don’t have the full plan, if you look at commentary coming out of state media it indicates that a focus of this will be on the national security state or bureaucracies. That makes sense to me, given all of the discourse coming out of Beijing about the very complex domestic and international environment that China faces and, indeed, the construction and expansion and modernization of what we would call a national security state has been a key focus of Xi Jinping’s at least since 2013 and 2014. So we’ve – again, these are rumors, but there are rumors out that they – we may see a breakout of the ministry of state security and ministry of public security from the state council and moving them more formally into party bureaucracies.
We’ve seen rumors that we may see reviving what we would call the National Reunification Commission, which is about Taiwan. There are a whole number of things which, again, we’re just getting rumors but indicate that we might see an elevation of the security state and the national security bureaucracy coming out of this, what is formerly known the party-state institutional reform plan. So I think that’s something to watch for.
Two other quick developments, then I’ll shut up. We’ll also be watching to see what happens with China’s defense budget. We saw last year an increase of 7.1 percent, which is up from 6.8 percent in 2021 but admittedly down from 8.1 percent in 2018.
The signs, again, that are coming out of Chinese military commentators indicate that we’ll see probably an increase over last year’s 7.1 percent and, again, the framing of this for these commentators is about how China’s external environment is becoming increasingly, quote, “severe and complex.”
Taiwan is frequently mentioned as a potential issue that is challenging Beijing. Of course, they reference Taiwan insofar as they say that the United States and the current ruling DPP are meddling with this. But, nonetheless, there’s a lot of confirmed drivers of the need for increased military spending.
The final one is – issue to watch for is Taiwan. You almost always see a reference to Taiwan in the government work report. You have, at previous National People’s Congress(es), seen significant movements on the Taiwan issues, such as the 2005 Anti-Secession Law. There have been rumors floating for months that we may see something similar here. Whether that’s a revision of the 2005 Anti-secession Law to put more clarity on what the terms that would require China to use, quote, “non-peaceful means” are, or you may see again some of these institutional innovations around achieving reunification that could occur out of this party and state institutional reform plan. So these will all be very important signals to watch on the security front and as they relate to U.S.-China bilateral relations.
So I’m probably over time, so with that let me turn it over to my colleague, Scott Kennedy.
Scott Kennedy: Thanks, Jude. Good morning, everybody, and I’m happy to provide a little bit of context to the NPC on the economic front before I hand things over to Ilaria to talk about energy, climate, other issues. Let me just make a few brief points before I hand the baton to her.
You know, I’ve been watching China for a long time, and there was an era – maybe a quarter century ago – when folks thought that the National People’s Congress was gathering power and going to be an institutional check on the party, and you would see members vote no on things, put forward their own proposals, make some interesting comments, and we’re long past that period now. The purpose of the annual session is a signaling exercise of what the leadership’s goals are and what they want everyone to think about going forward. And given that this is a new NPC coming together just after the 20th Party Congress, they’re really trying to set the agenda for the next five years.
I think the broad message is continuity with what has been occurring over the last 10 years and even longer, but in addition to that, that China is getting back to normal. It is – the pandemic is over. There is still a very complex, challenging international environment, but the party is up to that challenge. I think that’s the broad message they want to signal.
But it is a very challenging environment on the economic front. Yesterday they issued their communique about the economy for last year and, you know, they can crow that they created 12 million jobs, that GDP grew 3 percent, that China has generated a lot more value added in industry and in services, and a few other data points. But for the most part, the economy looks really problematic – short term and long term.
GDP – if you believe – to get to 3 percent GDP growth, half of that came from investment, and almost all of that growth in investment was from state-owned enterprises, which increased their fixed asset investment 10.1 percent last year, private companies only 0.9 (percent), and MN – multinationals fixed asset investment dropped 4 ½ percent last year. And population fell 850,000 last year – the first time China’s overall population has fallen in anyone’s memory.
And, you know, one interesting statistic – processing trade – you know, China is the world’s largest trading country now, and it has been deeply embedded in global production and trade networks. In 2000, 48 percent of China’s trade was processing trade. Last year, as the communique reported yesterday, that number is down to 20 percent of China’s trade being processing trade. Processing trade is essentially traded intermediate goods, and what this means is a combination of China’s own value-added and quality has been going up, but over the last few years, contributing to this drop in processing trade, is foreign companies moving some of the production, global supply chains out of China to Southeast Asia, India, elsewhere. And so we’re seeing not a decoupling of China from the rest of the global economy, but primarily trade in final goods between China and the rest of the world, which is a significant shift. And it ought to be something that the leadership is worried about.
Are they going to get to fix these challenges? Well, they do admit, in the meeting that they just held over the last couple days, the party leadership meeting, the second plenum, that the economy faces low demand, interrupted supply, and weakening expectations – and that those weakening expectations are maybe the biggest challenge that they face, not just from foreigners but primarily from Chinese consumers and private companies that have been holding – withholding consumption and investment.
So, how are they going to address those things? Well, they are probably going to set a goal of growth for over 5 percent. And they will be able to achieve that through the basic policies that they’ll announce, which is going to be significant monetary loosening and fiscal spending, encouraging people to buy second homes to re-inflate the housing market, and an emphasis on investments in science and technology, and rural revitalization.
So we’ll see policies that, you know, from, you know, just simply raw insertion of credit and money, will generate growth more than last year. Will that be healthy growth, based on improved efficiencies and improved productivity? Probably not. But they will be able to hit their targets.
The other side of this is going to be on the appointment side, because you don’t have – once you announce policies, they have to be carried out. And I think one of the things that is going to be most important to watch are – is who gets the top jobs on the – in the econ bureaucracy. For the last 30-plus years, China’s economic performance has depended on very smart, wise, economic bureaucrats who have given political space to implement a whole variety of economic policies that are pragmatic. And it – there’s a worry that this era is coming to an end, certainly because of the overall direction and trajectory Xi Jinping wants to take the country, his emphasis on political loyalty above expertise. And so there is the question about whether this new team will have the capacity and space to be smart, pragmatic governors of the – stewards of the economy.
And I think everyone knows that as Li Keqiang steps down as premier, his likely replacement is Li Qiang, who has been party secretary of Shanghai, been very loyal to Xi Jinping, perhaps got the job because he implemented the Shanghai lockdown exactly as Beijing wanted, not as the people of Shanghai wanted.
In addition, the most likely replacement for Liu He, who has been the vice premier in charge of the economy, is He Lifeng. And He Lifeng goes back a very long way with Xi Jinping, to Fujian, which is where He Lifeng is from. He has most recently been the head of the National Development Reform Commission, China’s planning agency, and also has experience in Tianjin, where he spent a ton of money on infrastructure. And he’s not considered a(n) economic reformer.
The folks that run the financial bureaucracy – the central bank, the Banking and Insurance Regulatory Commission, China’s security markets – all of those people are slated for retirement or moving to other positions. And their backers, from Zhou Xiaochuan to others, are retiring. And their replacements who have not been named yet, may understand math, but they may not understand economies, and they may understand who their boss is even more.
So, I think people are really going to be looking for who those appointments are, and will be paying great attention to Li Qiang’s press conference, held on the morning of the last day of the NPC, likely on the 13th or 14th of March, and that will give us a big indication about where China is aiming to go this year.
So, let me stop there and hand things over to Ilaria.
Ilaria Mazzocco: Thank you, Scott.
And hello, everyone. I’ll try to keep my remarks brief, since we’re taking up a lot of time here.
But on the energy and climate front, I’m essentially not expecting any big surprises from the NPC. In recent years, big climate announcements have actually been made by Xi himself at international venues, like the U.N. General Assembly. So the NPC is usually where you get more of the details on the implementation, but even there, most of the details end up coming out from the specific sector plans.
But I think, you know, appointments will be really important. But even more important, I think, is just sort of getting a sense of the general direction. My expectation is that we’ll see a big focus on energy security, continued stress on orderly energy transition, which essentially means not rocking the boat too much and not taking actions that might disrupt economic growth – which, you know, as Scott mentioned, is really going to be the focus this year. So I think this is going to be reflected by statements that we’ve heard also for NPC members, and I think just generally government policy. So I think that we’ll just see it directly in the policy of build more energy generation capacity of any kind, which was, you know, really the policy – the driving policy for the past – definitely the past year.
2022 was record-breaking for solar and wind installation. And there’s 165 gigawatts projected for the next year. That’s very significant. It was also – 2022, though, was also a record-breaking year for coal power plant permitting. So CREA and research analysis – an energy organization that focuses on energy research – estimates that there were power plant permits approved every week in 2022. I’m afraid you won’t actually see a sudden reversal of that, but I think watching whether there’s any announcements concerning coal and maybe restricting a little bit the permitting boom will be important.
But overall, I think, you know, the focus will be on securing energy and ensuring that energy supply remains stable, due to several reasons. One has been the price volatility that we’ve seen over the past two years, and especially, you know, the continued effects of the war in Ukraine. The other two are related. One is that, you know, the last year one of the most significant power shortages was caused by weather trends in China, right? It was the hottest summer on record. And there’s no reason to believe that we won’t see these kinds of droughts or record-breaking weather events again. And which will put, again, great strain in China’s power grid.
But the power grid will probably also be strained by economic recovery, right? If we see a lot more activity on the industrial side, that’s probably going to mean more energy demand. Which, again, could put – could put a lot of pressure on the power sector. So I think these are all going to be concerns for policymakers, which are going to affect the way they see energy and climate policy. And I don’t see them actually really going away this year, or perhaps even the next few years.
I’ll just say two last things on commodities and data. Demand has been lower than expected for electric vehicles. Of course, China is, you know, the major market for electric vehicles. This isn’t necessarily about electric vehicles themselves. It’s more about the Chinese consumer. As Scott has mentioned, this has been sort of the big bellwether. And this lower demand has put downward pressure on lithium prices, which, again, may threaten the business model of battery makers. And this is expected to be a big export industry for China. So we may see – and we’ve already heard that the government is interested in sort of stimulating demand in the auto sector. So this would be another incentive for that.
And the other – the other thing I wanted to mention was just data. We’ve seen – the national statistics bureau released a communique yesterday, actually. And there have been a lot of concerns over the coal data and the emissions data. And actually, a lot of foreign analysts believe that China actually emitted fewer emissions last year and consumed less coal than what is being officially reported. So we’ll see if that gets revised over the course of the year or whether we’ll continue to see sort of a gap between what energy analysts expect and estimate, and what the government is actually reporting. That would be quite significant, obviously, for climate.
Ms. Montfort: Great. Thank you so much, Ilaria. And thanks to Jude and Scott as well.
I’ll quickly turn it over to our operator to let folks who’ve called in know how to queue up. If you have questions, this is the time.
Operator: Thank you.
(Gives queuing instructions.)
And one moment, please, for your first question. Your first question comes from the line of Henry Wessell from the Bower Group Asia. Please go ahead.
Henry Wessell: Hi, everyone. Thank you for this great event, very, very insightful.
I was wondering what you guys think of China, you know, doing anything to – and sort of conveying this during the two sessions – you know, about proactively decoupling with the U.S., like, you know, sort of what we saw in the news with the government not allowing state-owned enterprises to work with, you know, the United States’ big four accounting firms. Thanks.
Dr. Kennedy: I can offer a brief comment on that and invite others. The Chinese accuse the U.S. of being the country that is interested in decoupling. Of course, the Chinese, at the same time, have promoted the importance of technology self-reliance, reducing dependence on use of the U.S. dollar, and being vulnerable to sanctions and the like. But I don’t think – so I think the Chinese have sort of a mirror view of the dangers of interdependence that we see prominent in the United States, although they just don’t – they don’t frame it as decoupling; they frame it as resilience and national security, the same way we do. I would say we have not seen the Chinese retaliate in technology for the restrictions that the U.S. has placed on it, that has begun to be adopted by other countries, because China knows that it can’t survive without being connected to global technology supply chains and innovation networks. So I don’t think – I think broadly China would like to remain part of the global economy, but they’d like more leverage as part of that relationship, instead of, you know, outright decoupling. I don’t think China is interested in autarky per se.
Ms. Montfort: Thank you, Scott.
And I think we’ll go on to the next question.
Operator: Next question comes from the line of Cate Mok, a freelance journalist. Please go ahead.
Cate Mok: Could you elaborate more on what institutional innovations around achieving unification might entail for Taiwanese and U.S. interests? Thank you.
Mr. Blanchette: Well, they wouldn’t be for U.S. and Taiwan interests, but they’d be – you know, this could take a number of forms. So I think substantively, it’s unlikely that China’s going to announce anything which actually has new capabilities to achieve, quote/unquote, “reunification,” which is China’s word for annexation. I think much of this is likely to be symbolic efforts to demonstrate resolve on Beijing’s part. So if you think about the Anti-Secession Law of 2005, it was as much a – sort of a public warning and signaling device to indicate that China wasn’t backing away in the face of, then, the Chen Shui-bian government in Taiwan. So if you think about things like, you know, the National Reunification Commission, if that is advanced, I don’t see that as giving sort of de jure capabilities, or even if you saw – which I don’t think this is likely, but if you saw something like a national reunification law or a national security law for Taiwan modeled roughly on what they did in Hong Kong, that wouldn’t – the big difference with Hong Kong is Hong Kong was de jure Chinese territory after 1997. China claims de jure ownership of Taiwan, but of course they don’t have it.
So something like a national security law or national reunification law wouldn’t have any technical teeth to push anything forward on Taiwan; it would be a part of Beijing’s effort to sort of throw a brushback pitch to Taipei, Washington, D.C., but also, critically, you know, third-country capitals. So I think I would think of these steps in that way as symbolic efforts to demonstrate credible resolve on Beijing’s part, and also to signal to domestic audiences the same sort of resolve and nationalist stamina that Beijing is not going to crumble in the face of, you know, growing pressure from the United States and many third countries on the Taiwan issue.
Ms. Montfort: Great. Thank you, Jude.
And then I believe next up we have a question from Chris Buckley at The New York Times?
Chris Buckley: Thanks very much for this presentation.
One question, I guess for Jude: What do you think is the rationale or driving motive behind this idea of an even more expanded domestic security commission or apparatus? Like, what problem is it supposed to solve, since we already have a number of these institutions? And also, I’m struck that nobody so far has mentioned that Xi Jinping will be getting another term as president at this NPC. (Laughter.)
Mr. Blanchette: You know, point taken on the second question, Chris. I guess now it’s just so internalized that we have a leader for life that that seems a fait accompli. And also just – I should say, for everyone else on the call – you know, technically speaking, he would have to be reappointed at the National People’s Congress. And one of the wildcard ideas would be, and has always been, that Xi could technically find a third – a second individual to take the position of president of the PRC, and he maintains control over the Office of General Secretary within the Communist Party and head of the Central Military Commission.
And we’ve seen – we’ve seen splintered leadership previously in China, so it’s not technically out of the question. I think it’s very unlikely that he would give up the office of the presidency, in part because that’s the normal office he would need to occupy to engage in formal bilateral relations with other countries, because countries don’t have a match for his position within the party, except if he’s visiting other communist countries, you know, like Vietnam or North Korea.
So it’s a good question too, Chris, on the logic of this. Obviously, the buildout of the national security state, including National Security Commission and then the subsidiary national security commissions which go at the provincial or local level, has been something that has been occurring for – since 2014-2015. You know, just looking at some of the discourse that’s surrounded the second plenum – the second plenum communique talking about the institutional reform plan, and then some of the commentary on this, one of the through-lines seems to be further centralization of control, and also bringing these more within the purview of the party apparatus.
So, again, these are – these are speculative. But some of the commentary about our institutional rejiggering of the Ministry of State Security and the Ministry of Public Security has been about bringing them more in line with party authority and control. So I think probably it’s centralization – the two drivers would be centralization and streamlining. Even in the 2018 modernization, you know, the big motivator that they articulated was: We still have too fractured an organizational system and structure, and need to be both simplifying or, as one of the commentaries I was reading this morning was saying, you know, the key word is “minus.”
So, you know, shrinking the lines of authority and control or streamlining those, and bringing those under, you know, closer party purview. After that, I’m getting very, very speculative, because I just know what the – sort of, the rumors are saying, but don’t have any clear idea on what the actual guts of the plan would announce.
Ms. Montfort: Terrific. Thank you so much, Jude.
Mr. Blanchette: Over.
Ms. Montfort: (Laughs.) Thank you. And thank you to my colleagues, Jude, Scott, Ilaria, and to the members of press and other interested groups who have dialed in today. We’re a bit over time, so we’ll conclude the call here for today.
As a reminder, if you RSVPed to me, Paige Montfort, for the briefing, I’ll send you the transcript directly within just a few hours. It’ll also be posted to CSIS.org. And if you were not able to ask your questions or have follow-ups in the coming days, please feel free to reach out to me by email at pmontfort@CSIS.org. I’m happy to connect you with these three experts and other colleagues for comments and interviews. Thank you all for joining us today.
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