Stability will govern the agenda for 2022 as Chinese legislators convene

As China’s legislators are set to convene in Beijing in early March, stability becomes the governing theme for the country in the year of the 20th National Congress of the Chinese Communist Party (CCP) taking place in Fall, where Xi Jinping will most likely secure his third term in power and a new party leadership will be formed.

Assessment

  • The annual sessions of the National People’s Congress (NPC) and the National Committee of Chinese People’s Political Consultative Conference (CPPCC), commonly known as the Two Sessions (lianghui 两会), will be respectively convened on March 4th and 5th to discuss policy priorities of the coming year.

  • The NPC will pass the government’s work report presented by Premier Li Keqiang, the 2022 socio-economic development plan, as well as the annual budget, which contain essential indicators of China’s macroeconomic and industrial policies.

  • The Two Sessions are expected to put a particularly high emphasis on stability and continuity of policies rather than introduce dramatic reforms like in previous years. The Central Economic Work Conference in December has already set the tone.

  • As has been the custom in recent past, Premier Li Keqiang’s government work report is expected to announce this year’s annual GDP growth target, China’s most important economic signaling indicator. This year, it is expected come at 5% - 5.5%, down a notch from last year’s target of 6%, following most provinces that have also lowered their projected economic growth this year. More developed provinces like Guangdong, Jiangsu, Shandong, Shanghai, and Beijing, whose anticipated GDP growth can serve as good benchmark for the national one, have also set their target range at 5% - 5.5%.

  • More expansive and pragmatic monetary and fiscal policies are expected to stabilize growth expectations, with China’s fiscal deficit and the special purpose bond quota as key benchmarks to watch.

  • While other major economies are learning to live with the virus, China’s zero-tolerance approach towards COVID-19 is unlikely to be altered by the Two Sessions, as the last thing Beijing wants are uncertainties ahead of a politically very important CCP Congress. The Two Sessions is still expected to offer a window into how China may slowly phase out its pandemic restrictions.

  • Social policy will certainly play a greater role this year as the Chinese government needs to show first results and more concrete planning with regards to Xi Jinping’s new major policy drive of the Common Prosperity.

  • Foreign policy is not expected to see significant change during the Two Sessions, as Russia’s recent invasion of Ukraine is putting China into an awkward position that takes finesse and diplomatic skill to maneuver itself out of. Beijing understands that a stable external environment is still crucial for its mid- and long-term development needs towards its 2049 goal.

Implications

  • The CCP Congress in Fall will be China’s most important political event since Xi took power in 2012, as he is set to deviate from the Party norm of leaving office after two five-year terms. To ensure a smooth transition into his third, and later possibly fourth term, maintaining overall stability is the highest priority for him in 2022. The discussions and proposals during the coming Two Sessions will follow this spirit.

  • After a series of abrupt regulatory reforms and interventions in the previous two years with negative market impact as well as the continuation of strict Covid policies, China needs to boost optimism in its domestic market. Although the Chinese government is determined to achieve profound structural goals such as technological self-reliance and the Common Prosperity in the mid- and long-term, in the short-run more market shocks as in the most recent years are expected to be less likely.

CMG: Amid economic headwinds, policymakers emphasize stability and signal more policy support