Chinese Premier Li Keqiang, speaking at the opening of the National People’s Congress on March 5, announced an economic goal of about 6.5% growth for 2017. This marks the third straight year that China has cut its growth target. Credit is due the Chinese leadership for its emphasis on economic stability in the medium to long term, as opposed to pursuing unreasonably high growth.
China hopes to double gross domestic product and per capita income from 2010 levels by 2020 — not an easy task. A deft touch will be needed to effect structural reforms while maintaining employment and without crippling the economy. The country also urgently needs to halt capital outflows, which have rapidly depleted foreign exchange reserves.
There are many questions about “supply-side reforms,” the focus of China’s structural reforms. Cuts in crude steel production were reported to have been 65 million tons in 2016, well above the 45 million ton target. According to the World Steel Association, however, China’s crude steel output in 2016 exceeded the previous year’s level. These cuts claimed by China are misleading, as they include steelmaking facilities that had been previously shut down, sources familiar with the industry said.
In the military arena, Beijing did not reveal money earmarked for defense during the NPC. Later, however, a national news agency announced a year-on-year increase of 7% projected for 2017. This would push China’s military spending over the 1 trillion yuan ($144 billion) mark for the first time — more than three times that of Japan.
Chinese military spending has long been opaque. Many experts feel that if research and development costs and other expenses were included, the actual defense budget would be far more than officially stated. U.S. President Donald Trump has already indicated plans to increase defense spending by about 10%. Should the U.S. and China engage in a military buildup, security in the Asia-Pacific region would be significantly impacted.
The Chinese Communist Party is scheduled to convene in the second half of the year to select new leadership. Prior to this important meeting, it has been made abundantly clear that President Xi Jinping now belongs to the party’s “core” — a term used sparingly and only when referring to exceptional leaders. In a display of deference at the NPC, Premier Li repeatedly used the term to refer to Xi during his address.
As a result of Xi’s growing power, key economic policies and other decisions increasingly originate with the “core” leader. A visible sign of this is the number of new economic ministers who have close ties to Xi. As steward of the world’s second largest economy, China must realize its actions affect not only Asia, but the entire global economy. Seen in this light, President Xi is shouldering a heavy responsibility.