The National People’s Congress Exposes Xi Jinping’s Problems

Executive Summary:

• Li Qiang’s government work report offered no significant incentives to help the nation’s three sectors most in need of government support. Economic targets were practically identical to those for 2023 but will be harder to achieve.
• Xi amassed more power through sidelining Li and other colleagues, violating personnel norms, and through revisions to the State Council Organic Law.
• Lack of support to homebuyers and the real estate sector suggest people will have to wait for the Third Plenum later this year.
• One bright spot was the plan to invest RMB 700 billion—in addition to issuing special bonds worth RMB 1 trillion—in high-tech sectors.

The annual plenary session of the National People’s Congress (NPC), the parliament of the People’s Republic of China (PRC) should have seen the articulation of a clear-cut direction to tackle the dire economic situation. Instead, the focus has turned to how supreme leader Xi Jinping is exercising his power. Evidence has continued to emerge that the 71-year-old General Secretary of the Chinese Communist Party (CCP) and commander-in-chief is more interested in consolidating his own power and stoking the flames of nationalism than re-introducing market-oriented policies to remedy the nation’s financial malaise.

In his Annual Government Work Report at the opening of the parliamentary session on March 5, Premier Li Qiang (李强), who is ranked second in the Politburo Standing Committee (PBSC), offered no significant incentives to help the nation’s three sectors most in need of government support: the property market, indebted local governments, and the banking system. This is despite his optimistic targets for the year ahead, which were almost identical to those set for 2023 (which were duly met): a 5 percent GDP growth target, a fiscal deficit of 3 percent of GDP, a special bond quota for local governments of RMB 3.9 trillion, the creation of “over 12 million” urban jobs, and an unemployment rate of “around 5.5 percent” (NPC Observer, March 5). However, the headline growth figure will likely be much more difficult to achieve compared to last year, as the economy does not have the prospect of a post-pandemic rebound. Some analysts suggest that potential growth in the PRC is no higher than three percent, even while others believe that it is at least theoretically possible for the country to sustain five or six percent growth, given certain policy shifts (SOAS, March12; Caixin, March 9).

The special bonds earmarked to help localities handle tens of trillions (RMB) of combined debt seem a case of too little, too late. Li suggested that more would be done to “defuse risks in property, local debt, small and medium-sized financial institutions,” but did not elaborate (News.cn, March 5; Gov.cn, March 5). Moreover, apart from measures announced prior to the NPC sessions, such as lowering the reserve requirement ratio of the banks, no new efforts have been made to rescue close-to-default financial institutions. Partly because of excessive lending to overleveraged real-estate developers, many provincial and county-level banks have created hurdles for depositors who want to withdraw their own cash. To boost consumer-spending, one of the “new” areas of growth, the government has lifted the lowest level of monthly old-age benefits payments from RMB 103 to RMB 123. The miniscule size of the raise has invited wild-spread criticism in the social media (VOA, March 8; Eastmoney, March 5).

The lack of support to the real estate industry and for homebuyers is also concerning. Perhaps most disappointing to the significant portion of China’ 400 million-strong middle class who have bought “lanweilou (烂尾楼)”—unfinished apartments for which they have already paid—is that the Xi leadership has announced no new measures to bail out conglomerates such as Evergrande, which has run up debt totaling RMB 2.5 trillion. Instead, minister for housing and rural development Ni Hong (倪虹) pointed out at the NPC that Beijing’s new focus was on “promoting a new development model for the real estate market,” which he said would involve “planning and building affordable housing.” Here, Ni used the term “subsidized housing (保障楼),” a throwback to the Maoist era when apartments were rented to qualified—usually senior—employees of the government, semi-governmental units, and SOEs. Ni also recited Xi’s well-known reprimand for commodity housing (商品房) speculators: “Houses are built for living, not for speculation.” The minister strongly hinted that in the future, housing would be divided into commodity apartments for the relatively well-off sectors as well as government-owned apartments rented out to qualified employees of party-related units (Fortune, March 12; Xinhua, March 9). Such policies do not seem to be of as high an order of priority as helping those who have fallen victim to the overleveraged developers that have now filed for bankruptcy.

There was one bright spot in the report. Beijing will invest at least RMB 700 billion—in addition to issuing special bonds worth RMB 1 trillion—in high-tech sectors that focus on AI, semiconductors, biosciences, and green technologies such as batteries for electronic vehicles. Li used the slogan “to accelerate the development of new productive forces” in his report and pledged that input into high-tech sectors would be boosted by at least 10 percent a year (WSJ China, March 13; Bloomberg, March 7). The much-touted goal of predicating the nation’s economy on high-tech sectors, however, is not new. This is the direction in which the PRC’s top planners have been moving for a while now, and was discussed most recently in a lecture Xi gave to the Politburo on February 1, while Premier Li was away attending the World Economic Forum in Davos (People’s Daily, February 2).

Beyond the policy announcements, an intriguing aspect of the NPC sessions has been how blatantly Xi has bent rules and conventions to underscore his already undisputed power. For example, for the first time in almost 30 years, the traditional end-of-NPC press conference by the premier was abolished. Given that this was the only opportunity that such a senior cadre faced the media—and that it would be broadcast live—the premier’s presser had become a main attraction of the entire parliamentary session. Not only was the press conference canceled for this year’s NPC, spokesperson Lou Qinjian (娄勤俭) suggested in a press meeting that this this arrangement “will continue for the remainder of this term of the NPC,” so it is unlikely to be revived any time soon (RFI, March 12; NYT Chinese, March 6). This reduces the premier’s ability to cultivate a personal identity independent of Xi, as well as limiting the transparency and accountability—to the extent that it exists—of the government.

Xi has sidelined the decision-making powers of the government ever since coming to power. This violates the doctrine of the “separation of party and government” established by Xi’s predecessor Deng Xiaoping in 1987. The State Council Organic Law, revised by the NPC, doubles down on the interpretation that the State Council is but an executive organ, rather than a site for policy design. The law makes clear that the State Council’s major task is to implement policies and laws devised by the Xi-led party leadership (NPC Observer.com, March 11; Global Times, March 11).

Xi has also sidelined his colleagues. The two PBSC members who lead the State Council—Premier Li and Executive Vice-Premier Ding Xuexiang (丁薛祥)—do not seem to have been given major portfolios. Politburo member He Lifeng (何立峰), who is responsible for finance and economics, is not an English-speaking technocrat in the mold of former premier Zhu Rongji (朱镕基) or the many technical cadres he had groomed for high government positions. He gained his prominent role mainly due to having worked with Xi when the latter was rising through the hierarchy in Fujian Province in the 1980s and 1990s (VOA, November 4, 2023; Nikkei Asia, August 19, 2023).

Xi has in the past few months repeatedly violated party practices. The CCP leadership postponing the Third Plenum of 20^th Central Committee indefinitely, which was expected to be held at the end of 2023, is a notable example. The Party’s Charter also points out that changes in the composition of the CCP Central Military Commission could only be effectuated in a plenum. Yet disgraced former defense minister Li Shangfu (李尚福) was dropped from Party documentation last month. And in contrary to conventional processes, not a single word was given to acknowledge or explain the disappearance of a dozen-odd generals as members of the NPC and the Chinese People’s Political Consultative Conference (RFA, March 8; RFI, November 23, 2023).

As CMC chairman, Xi seems to be putting inordinate stress on high-tech military campaigns, which he referred to for the first time as “new quality (新质)” warfare. While meeting delegates from the PLA and the People’s Armed Police to the NPC, Xi said that they “must comprehensively raise our strategic and fighting power in new [tech] areas… this is a new task for the system of national defense mobilization.” Xi made particular mention of the symbiosis of “new productive forces” and “new-quality defense.” The commander in chief pointed out that the PLA and PAP must improve their skills in naval, deep-water, spatial, and cyber domains, and AI-assisted capacities. Military expenses were forecast by Premier Li to grow by 7.2 percent this year (People’s Daily, March 9; VOA, March 9).

In his NPC press briefing, Foreign Minister Wang Yi (王毅) picked up the themes of “wolf warrior diplomacy.” This is despite apparent efforts by Premier Li and Wang himself to strike a more conciliatory pose while talking to foreign government officials and leaders of multinational corporations in their recent trips to Europe. Without mentioning either the United States or its “anti-China” allies in Europe and Asia, Wang said Beijing had gone “beyond the obsolete zero-sum game mentality… [and that the CCP leadership] assumes the moral high ground of civilization and captures the shared aspirations of all nations.” He went on to add that “building a community with a shared future for mankind has become a glorious banner leading the progress of the times,” in an oblique but pointed dig at the “divisive” approach of the Americans (FMPRC, March 7). Wang’s stance echoes the harsh tone regarding the West contained in Premier Li’s Government Work Report.

In his NPC speech to deliver the government work report, Premier Li admitted that “risks and potential dangers in real estate, local government debt, and small and medium financial institutions were acute in some areas.” He added that “under these circumstances, we faced considerably more dilemmas in making policy decisions and doing our work.” This sounded unrepresentatively candid. But irrespective of the diagnosis, so long as Xi keeps arrogating all powers and responsibilities to himself, the long-term outlook on the political, economic, and diplomatic fronts will not improve.