As 2025 approaches, analysts are closely watching for signals on how China plans to navigate its domestic challenges and global ambitions. Here’s a breakdown of what to expect from China’s Two Sessions in 2025.

For a thorough post-event analysis and interactive Q&A session featuring a panel of industry experts, we recommend CBBC’s upcoming “Two Sessions Debrief” on 13 March 2025. Experts including Su Yue, Principal Economist at the Economist Intelligence Unit, and Feng Chucheng, Partner, Hutong Research, will discuss the outcomes from this year’s Two Sessions and provide analysis on the political and economic implications for UK business. Sign up here.

What are the Two Sessions?

The Two Sessions are a key platform for China’s political decision-making. The NPC, China’s top legislative body, reviews and approves major policies, the national budget, and government reports, including the Premier’s work report. The CPPCC, an advisory body, gathers representatives from various sectors to provide recommendations on policy issues. Together, these meetings offer a comprehensive roadmap for China’s governance and strategic priorities.

In recent years, the Two Sessions have focused on economic recovery, technological self-reliance, environmental sustainability, and social welfare. Against a backdrop of global uncertainty and domestic pressures, the 2025 meetings are expected to address these themes while reinforcing China’s long-term goals.

Economic stability and growth

Economic policy will take centre stage at the 2025 Two Sessions. China’s leadership is likely to prioritise measures to stabilise growth and boost consumer confidence. In 2024, China set a GDP growth target of around 5% and it is likely that this will be maintained in 2025.

To achieve this growth, China is expected to implement a more proactive fiscal policy. For example, the fiscal deficit ratio may be increased to approximately 4% of GDP, surpassing the traditional 3% threshold. This move would allow for greater government spending on infrastructure projects, social welfare programs, and initiatives aimed at stimulating domestic consumption.

Other analysts have pointed out that China’s property market, which has been a significant drag on economic growth, will be a focal point. The government may introduce further measures to stabilise the sector, including support for affordable housing and reforms to address local government debt.

Technological innovation and self-reliance

Technological self-reliance will be another major theme.

The emergence of Chinese AI company DeepSeek has garnered substantial attention in recent months. DeepSeek’s recent achievements have positioned it as a formidable opponent to Western tech giants like competitor OpenAI, highlighting China’s growing prowess in the tech sector.

Nevertheless, China continues to face challenges in achieving self-sufficiency in semiconductors and other critical technologies. The 2025 Two Sessions may unveil new policies to support research and development, as well as incentives for domestic companies to reduce reliance on foreign technology.

Green transition and climate goals

China’s commitment to achieving carbon neutrality by 2060 will remain a key focus. According to The Guardian, the 2025 Two Sessions are expected to outline plans for expanding renewable energy projects, including wind, solar, and nuclear power. The government may also introduce policies to promote energy efficiency and reduce emissions in heavy industries.

Others suggest that China’s carbon trading market is set to play a larger role in achieving climate goals. The 2025 meetings may include announcements on enhancing the market’s scope and encouraging green finance initiatives to support the transition to a low-carbon economy.

Demographic challenges

China’s ageing population and declining birth rate pose challenges to the country’s long-term economic stability, and policymakers are likely to propose reforms to try to slow their effects. For example, a member of the CPPCC has recently proposed lowering the legal marriage age from 22 to 18 for men, and from 20 to 18 for women, to encourage earlier family formation.

Additionally, the government may introduce incentives for families, including financial subsidies, tax breaks and enhanced access to childcare services. These measures aim to alleviate the financial burdens associated with raising children and to promote a more family-friendly environment.​

Geopolitical considerations

The Two Sessions will also provide insights into China’s approach to international relations. Amid the constantly-evolving situation of the war in Ukraine, and with tensions persisting between China and the West, particularly over trade, the 2025 meetings may highlight efforts to strengthen ties with emerging markets and regional partners.

As such, Chinese state media have reported that the Belt and Road Initiative (BRI) will remain a cornerstone of the country’s foreign policy. The 2025 Two Sessions may announce new infrastructure projects and partnerships, as well as reiterate China’s commitment to multilateralism and global governance.

Predictions for 2025

The 2025 Two Sessions will need to achieve a balancing act between addressing immediate challenges and advancing long-term goals. Key themes will include economic stability, technological innovation, environmental sustainability, and social welfare.

While the meetings are largely scripted, they offer valuable insights into the priorities of China’s leadership. As the country navigates a complex domestic and international landscape, the decisions made at the 2025 Two Sessions will have far-reaching implications for China and the world.

The post What to Expect from China’s Two Sessions in 2025 appeared first on Focus - China Britain Business Council.

The foundation for China’s sustained economic recovery and growth is not solid enough,” stated Premier Li Qiang in the government’s work report published on 5 March.

The report is the central part of China’s “Two Sessions” meetings. Delivered by the premier, it outlines government achievements from the past year and sets goals and directions for the coming year. It is also usually when the country’s GDP growth target for the year is announced.

Over the last year, China’s GDP grew 5.2%, achieving the target, with urban unemployment dropping from 5.6% to 5.2%. Although the data shows the economy recovering, China is still facing challenges, including a sluggish real estate market and a lack of domestic consumer demand. Even the “new three” products of solar cells, lithium-ion batteries and electric vehicles, which were the highlight of 2023’s growth, may come under pressure from the EU’s carbon border tax.

With China now in the last two years of the current Five Year Plan period (2021-25), it faces increasing pressure to balance economic growth with emission-reduction targets. Against this backdrop, four key areas emerged from the government work report: improving carbon emissions accounting and trading; betting on cutting-edge tech to drive economic development; driving renewable energy growth; and consolidating achievements in combatting air pollution.

Green transition: Carbon disclosure is key

This year’s government work report heavily emphasised green transformation and low-carbon development, highlighting “improving carbon accounting and verification capacities” and “developing a carbon footprint management system” as top priorities.

Data is crucial. With the EU levelling the playing field on emissions-intensive products by introducing measures like its carbon border tax and a directive on “empowering consumers for the green transition”, there’s a growing push for Chinese enterprises to adopt greener supply chains and enhance their emissions data disclosure.

Furthermore, countries are preparing to submit their new climate action plans under the Paris Agreement in 2025.

The focus in the work report on emission data also reflects the need to expand the national carbon market to cover sectors beyond power. Operational since July 2021, China’s emissions trading scheme includes 2,257 enterprises in the power sector. Experts note the market’s low liquidity and trading volume.

Ma Jun, director of the Institute of Public & Environmental Affairs, told China Dialogue that one of the reasons China’s carbon market has not expanded beyond power as quickly as expected is that emission data accounting is more complex in steel and petrochemicals than in electricity.

“By improving the carbon emission accounting and verification mechanism, we can accelerate the expansion of the carbon market and help China’s related industries better respond to changes in international trade rules,” said Ma. “At the same time, to fully exploit the potential of the carbon market, we need to ensure that the carbon price reflects its true cost and encourage enterprises to slash their emissions. We still have a lot of work to do in these areas.”

Betting on new tech: ‘New productive forces’

The concept of “new productive forces” was a new entry in this year’s government work report. It reflects China’s attempt to transform economic stimulation, from relying on infrastructure, real estate and heavy industry, to encouraging enterprises to develop breakthrough technologies.

The scope of new productive forces was clarified at the Central Economic Work Conference last December. Some of the sectors mentioned included digital economy, artificial intelligence, bio-manufacturing, commercial aerospace, quantum computing and life sciences.

Although the Two Sessions proposed to “scale up the supply of government-subsidised housing”, it does not mean China will return to the old development path, according to Wang Yao, dean of the International Institute of Green Finance at the Central University of Finance and Economics in Beijing. “The Chinese government is regulating the overcapacity problem in industries such as steel and cement. Companies are becoming more rational and will not blindly launch new projects or expand capacity,” Wang Yao said.

“China has begun to downplay the goal of economic growth rate, shifting its focus towards the quality of growth and trying to balance both in the growth process,” Chen Ying, a researcher at the Institute of Ecological Civilisation of the Chinese Academy of Social Sciences, tells China Dialogue.

“New productive forces” encompass more than just tech products or breakthroughs, it also implies worker upskilling and “complementary policy support”, Chen Ying said.

Low-carbon tech is the major focus. In February, the Ministry of Ecology and Environment (MEE) jointly issued the “National Key Low-Carbon Technology Collection and Promotion Implementation Plan,” aiming to promote low-carbon tech nationwide by 2025.

According to Wang Yao, “the introduction of ‘new productive forces’ will inspire all kinds of enterprises to enhance innovation-driven development, pursue low-carbon operations and transformation, to achieve high-quality sustainable development.”

Carbon peaking: Energy intensity in focus

The government work report emphasises the need to carry out the “Ten Actions to Peak Carbon”. These feature in the Peak Carbon by 2030 Action Plan issued by the State Council in 2021. That plan specifies three 2025 targets related to energy and emissions: the proportion of non-fossil energy consumption will reach about 20%; energy intensity will decrease by 13.5% compared to 2020; and carbon intensity will decrease by 18% compared to 2020. The three targets can be seen as yardsticks of China’s progress toward carbon peaking.

This year’s target for energy intensity was included in the government work report – a reduction of about 2.5%.

Lauri Myllyvirta, a senior fellow at the Asia Society Policy Institute, believes that a 2.5% decline is not enough to achieve the targeted 13.5% drop in energy intensity by 2025.

“To achieve the 2025 energy-intensity-reduction target means that at least a 4.5% decline is needed in each of this and next year,” Myllyvirta told China Dialogue. “And significantly more to hit the 18% carbon-intensity target.”

Carbon intensity can be reduced either by reducing the amount of energy used per unit of economic output or by reducing CO2 emissions per unit of energy use.

China’s energy intensity and carbon intensity barely fell last year, according to the latest National Bureau of Statistics (NBS) data. This was due to a number of reasons. Last year was the first of China’s post-pandemic recovery and witnessed an explosion of production and travel demand. There were also frequent weather extremes, with high temperatures in the summer and cold snaps in the winter, leading to more energy consumption. China’s coal power and crude oil consumption grew by 5.6% and 9.1%, respectively, the data stated.

“Natural gas has lower carbon emissions than coal,” said Chen Ying of the Institute of Ecological Civilisation. “Western countries are transitioning by first replacing coal with natural gas and then developing renewable energy. However, we have insufficient natural gas resources and cannot follow the Western path. Instead, we must vigorously develop renewable energy. At the same time, to ensure the safety and stability of the power system, many new coal power projects have started construction. This is a temporary transition pain and will not shake the general trend of green and low-carbon energy.”

Ma Jun believes the Chinese government has always been cautious about setting targets. Although the 2.5% energy-intensity-reduction target is conservative, its appearance in the government work report will bring pressure and a sense of urgency. Even if reaching the 14th Five Year Plan energy-intensity target is very difficult, China is going to push hard to achieve it anyway.

With the increasing share of non-fossil energy in the energy mix, China has shifted its path on achieving peak carbon. Previously, it encouraged “dual controls” – on energy intensity and total energy consumption. Now, it promotes reductions in carbon intensity and emissions.

However, in this transformation process, there has been a tendency to ignore the need to reduce energy intensity and consumption, Ma Jun explains. The energy intensity of energy-hungry industries such as steel has increased instead of declining, resulting in a year-on-year increase in coal consumption. Some regions have launched energy-hungry projects such as petrochemicals and coal chemicals. This, coupled with the decline in GDP growth, has resulted in a lax control of energy intensity and carbon emissions. At the end of 2023, provinces such as Hubei, Shaanxi, Gansu, Qinghai, Zhejiang, Anhui, Guangdong and Chongqing were criticised by the National Development and Reform Commission (NDRC) for failing to achieve energy intensity and total energy consumption targets.

In February of this year, the NDRC, the National Bureau of Statistics, and the National Energy Administration jointly issued a document clarifying that non-fossil energy will not be included in the regulation of total energy consumption and intensity.

Myllyvirta told China Dialogue: “If the energy-intensity reduction target only looks at the total consumption of fossil energy in the calculation, then a 9% reduction in energy intensity by 2025 will be sufficient, rather than 13.5%.”

The biggest highlight in terms of China’s decarbonisation progress in 2023 is reflected in the accelerated development of new energy and related industries. In June 2023, China’s total installed capacity of wind, solar and hydropower exceeded 1.3 billion kilowatts, historically exceeding the installed capacity of coal power. By the end of 2023, more than half of the world’s electric vehicles were being driven in China, with the total number reaching 20 million.

“This year’s government work report especially emphasises the energy revolution, aiming to achieve a green transformation of growth patterns through vigorous development of renewable energy and new-energy-related industries,” Ma Jun said. “While transforming the energy structure and making energy cleaner, we must also strengthen energy conservation in traditional industries. Only by addressing both can we accelerate the process of industrial decarbonisation and improve the efficiency of [emission peaking and reduction] actions.”

Air quality: Consolidating a decade of achievement

Attention on “air quality” has appeared again in the government work report, after last year’s only briefly mentioned it in terms of governance achievements.

The inclusion may be related to the rebound in air pollution in China last year. Average PM2.5 levels rose year-on-year for the first time after a decade of improvements. PM2.5 increased in 26 provincial capital cities, including Beijing, and 40% of cities across the country had PM2.5 exceeding the national standard of 35 micrograms per cubic metre.

Ma Jun attributed this rebound to a combination of unfavourable factors. Last year, China experienced a shift from La Niña to El Niño natural climate phenomena, with pollution spreading unfavourably due to weather conditions, a once-in-a-decade sandstorm, and economic recovery after the pandemic leading to an increase in emissions from energy, industry and transportation.

Even so, China’s air quality trends show significant improvement compared to before the pandemic. China’s PM2.5 in 2023 was 6 micrograms per cubic metre lower than in 2019, an improvement of 16.7 %, said Huang Runqiu, Minister of Ecology and Environment, at a Two Sessions press conference.

“Under all the unfavourable conditions, China has stuck to its bottom line of [improving] environmental quality and consolidated the 10-year achievement in environment governance,” Ma Jun said.

Although there are no quantitative targets for air-quality improvement in the government work report, the policies and measures mentioned in it contain specific targets. For example, the Action Plan for Continuous Improvement of Air Quality sets 2025 targets for lowering PM2.5 concentration, number of polluted days, and total pollutant emissions.

This article was originally published on China Dialogue with the title “Two Sessions: What it Means for China’s Climate Policy in 2024” and has been reproduced under the Creative Commons BY NC ND licence.

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Theme 1: Consumption

If the popular Chinese expression “important things must be said three times” is to be taken literally, then consumption is tremendously important this year. Since December, the Chinese Communist Party (CCP) has repeatedly iterated the idea that consumption – as opposed to just investment – needs to be a strong growth driver in 2023. From the start of the year, local governments, banks, and companies have taken the hint by offering subsidies, discounts and beneficial policies to consumers and businesses, and this top-line message was again spelled out at the Two Sessions.

• Number one priority: In his Government Work Report (GWR), the outgoing premier Li Keqiang named driving up consumption as China’s number one economic priority. Without going into specifics, he called on the recovery and expansion of consumption by lifting wages, increasing society-wide investment and stabilising the purchase of big-ticket items. This message was later reiterated by President Xi Jinping and other leaders.
• Job growth: Urban unemployment was set at 5.5% and an ambitious target of 12 million new urban jobs was fixed. If achieved, this should boost consumption and GDP.

CBBC insights:

• Improved sales: Any uptick in consumer confidence will evidently aid domestic and foreign businesses after widespread uncertainty depressed sales last year.
• Policy benefits: Businesses should keep an eye out for favourable policies in response to the government’s consumption call. During the Two Sessions, Beijing declared that foreign retailers setting up shop locally may claim a RMB 5 million subsidy, and Hainan has since upgraded duty-free shopping and resumed its visa-free policy for foreign travellers.

Theme 2: Private business

The Two Sessions also underscored the importance of domestic and foreign private businesses, which have been impacted negatively by zero-Covid policies and crackdowns in recent years.

• Protect private business: The GWR called for the protection, support, fair treatment and guidance of private businesses. It also named the attraction of foreign direct investment as China’s fourth top economic priority.
• Premier Li Qiang’s ascension: Towards the end of the Two Sessions, China welcomed its new premier, Li Qiang, a pragmatist and ally of President Xi whose roots and track record suggest he is pro-business. In his first talk with the media, Mr Li said that the government was “unswervingly” committed to private business and keen to promote fair competition, adding that political leaders should make friends with business people.
• Legislated equality: On 7 March, the All-China Federation of Industry and Commerce (ACFIC) made a proposal to the State Council, suggesting a radical piece of legislation giving private enterprises equal treatment to state-owned organisations under the law. The legislation has received widespread domestic media attention but may not be adopted.
• IPR: China’s intellectual property rights office has been placed directly under the State Council. This will give it far more authority and indicates that the government is prioritising IPR, which is essential for the fostering of entrepreneurship and innovation.

CBBC insights:

• Messaging: Clearly, business and investor confidence will be rebuilt through action rather than rhetoric, but the government’s comments on private business and FDI, and the empowering of IPR organs, are positive signs.

Theme 3: Stability

Following a tumultuous 2022, Two Sessions’ changes and targets reflect the Chinese government’s desire to stabilise the economy and guide it towards more sustainable growth.

• Say it again: “Stability” is so important, it was mentioned a record 33 times in the GWR.
• GDP growth: An apparently unambitious economic target of “around 5%” GDP growth was set for the year. This realistic goal takes China’s current ongoing economic and geopolitical challenges into account and signals to already debt-laden local governments that massive stimulus in infrastructure and real estate is not the desired route to economic recovery.
• Financial restructuring: China’s financial regulatory apparatus underwent significant reforms, with existing bodies being renamed, given more authority, and having their responsibilities shifted. The reform aims to give regulators more power to carry out their functions and solve the issue of abusable gaps and overlaps in jurisdiction. It moves China towards a “Twin Peaks” model of regulation where the central bank manages prudential policy, and another regulator manages market conduct and consumer protection.
• Keeping of the guard: While a swathe of top government personnel changes was announced at the Two Sessions, two central finance leaders – Finance Minister Liu Kun and People’s Bank of China governor Yi Gang – will remain in place for now, maintaining some continuity to reassure markets as structural reforms are carried out.

CBBC insights:

• Better markets: Stability is a welcome stance following the disruptive lockdowns and confidence-rocking instability of the real estate market in recent years.
• Clarity: The financial reshuffle may benefit related businesses by leading to more consistent implementation of policy, clearer rules, and more streamlined processes. There will, however, probably be a period of uncertainty in the upcoming months during the reshuffle.

Theme 4: Futureproofing

Several Two Sessions changes and announcements are aimed at advancing China’s technological, scientific and military capabilities in order to safeguard its security and future prosperity.

• SciTech upgrade: The Ministry of Science and Technology (MoST) was stripped of unnecessary functions but given more authority. It’s now tasked with pooling national resources to achieve breakthroughs and greater autonomy in areas such as microchips. The creation of a new science and technology-focussed commission – a party-run body that will sit over MoST and likely be chaired by President Xi – indicates the very high priority given to this domain.
• Military upgrade: China’s military spending was increased by 7%, the highest increase in a decade. The change keeps China as the second-highest military spender in the world, though it remains dwarfed by the USA’s military budget. The spending boost reflects an attempt to upgrade security during a period of geopolitical tension and improve its capacity to carry out humanitarian activities in the event of global crises.
• Data upgrade: A body aimed at governing the use and commercial development of big data was created and placed under a high-level party commission – again implying that it is a high-priority area. Interestingly, one of this body’s goals is to encourage data sharing for the sake of promoting “smart cities” and an increasingly digital society.
• Fighting talk: Highly unusually, President Xi spoke out publicly against America and the West’s “containment” of China in the midst of Two Sessions talks and called on private businesses to “fight” alongside the party. This discouraging messaging reflects underlying anxiety about wider geopolitical tensions and Black Swan events such as the US’s highly disruptive microchip chip ban on 7 October last year, and calls on ministries and companies to increase their preparedness for crises.

CBBC Insights:

• Mixed messages: Despite President Xi’s ominous words, Premier Li – who oversees policy implementation – said that China was keen to diffuse tensions and that decoupling benefitted nobody.
• Data rules: Conforming to China’s opaque data rules has been something of a nightmare for businesses in recent years, so any improvement on that front will be welcome.
• Investment: China’s emphasis on science and emerging tech fields, combined with calls for FDI and foreign R&D centres, may point to business opportunities in areas such as big data, smart cities, IoT and blockchain. The UK could also benefit from joint research partnerships in fields where China is a world leader.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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China’s most important annual governmental meetings are slated to start on Saturday, March 4 in the Great Hall of the People in Beijing. The “Two Sessions” meetings, which refer to the annual meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), will preside over the main economic agenda for 2023, as well as significant governmental restructuring.

2023 will mark the first year of re-opening after the Covid-19 pandemic, and the government has already set its sights on full economic recovery and high growth as the year’s top priority. Although the lifting of Covid-19 restrictions in late 2022 has already boosted economic activity – the official manufacturing PMI reached the highest level in nearly 11 years in February – there remains a range of challenges, including sluggish domestic demand, persistent problems in the housing market, and unequal development across the country.  The economic and legislative decisions made at the Two Sessions are of high importance to business leaders and foreign investors in China; they serve as a valuable window into China’s politics and reveal Beijing’s priorities and policy direction for the coming year. Below we look at some of the most likely outcomes of the Two Sessions and discuss how they could impact businesses.

2023 GDP growth target

One of the most important announcements that will be made during the Two Sessions is the annual GDP growth target. In 2022, the GDP growth target was set at “around 5.5%”. However, China’s GDP growth rate missed the target, growing 3% year-on-year, due mainly to the large outbreaks of Covid-19 experienced over the year. In recent months, provincial and municipal governments have announced local GDP growth targets for 2023, giving an indication of the overall sentiment in the country.  In general, the provinces and municipalities have set very ambitious growth targets for 2023:

• At the higher end, the provinces of Hainan, Tibet, Xinjiang and Jiangxi have set targets of between 7 and 9.5%
• At the lowest end, Beijing, Tianjin, Shanghai, and Guangdong have set targets of between 4 and 5.5%.

The average of all the regional growth targets is around 5.9%. Although some of these targets may seem very ambitious, it is important to note that the single largest factor for decelerated growth in 2022 – Covid-19 restrictions – has been removed. In addition, low base effects from the slow GDP growth recorded in 2022 will mean that high growth rates in 2023 will be highly likely. For these reasons, we expect that the government will feel confident in setting a growth target similar to that of 2022.  The GDP growth target will have a major effect on the policy agendas of local governments. A more ambitious growth target will mean more effort will be put into short-term growth, which could come in the form of more infrastructure investment, incentive policies, and consumption vouchers, whereas a lower target will allow for governments to formulate longer-term development plans and address more systemic issues.

Government restructuring

The 14th NPC is expected to approve some structural changes to the government. This is a regular occurrence in China, with each new NPC making some tweaks at the beginning of its session every five years. The changes are not always big, but may nonetheless have a significant impact on how policy is formulated and implemented over the next five years.

The structural changes made in 2018, when the 13th NPC convened for the first time, were much more widespread than usual, and saw the creation of new ministries and branches of government, including the National Supervisory Commission, an anti-corruption agency. The new structural reforms have already been drafted and deliberated by the government on at least two occasions this year: during the Politburo meeting on February 21, as reported by Xinhua, and during the second plenary session of the 20th Central Committee of the CPC, which took place from February 26 to 28. According to the readout of the second plenary session, the session “agreed to submit some of the contents of the Party and State Institution Reform Plan to the first session of the NPC for review. The plan is therefore expected to be approved and released during the course of the Two Sessions, but no details have yet been made public.

One possible piece of information we have on the proposed plans comes from the The Wall Street Journal, which quoted unnamed sources saying that the government was planning on resurrecting the Central Financial Work Commission (CFWC) as part of an overhaul of the financial system. The CFWC was a financial supervisory body that was set up in 1998 in the wake of the Asian financial crisis, but was later dissolved in 2003. According to the The Wall Street Journal report, the reinstatement of this body will “largely serve a comparable function of consolidating all financial regulatory matters under a single authority”.  In addition to institutional reforms, the Two Sessions are also expected to confirm the appointments of several high-level positions, including the premiership (to which Li Qiang has already been confirmed), the vice premiers, and the heads of major governmental bodies, including the National Development and Reform Commission (NDRC), the Ministry of Finance (MOF), and the central bank (PBOC).  The appointment of these officials will give a good indication of where the country’s policies and development trajectory will go, as the officials will have a significant influence on policy decisions in their respective fields.

Policies impacting foreign businesses and investment

Since China’s reopening at the end of 2022, government officials have been promoting the role of foreign investment in China’s economic recovery. The CEWC, for instance, highlighted the need to increase foreign trade and investment cooperation to stimulate growth and proposed expanding market access as one of the means to increase foreign investment in China.

Several Chinese officials have also embraced pro-foreign business rhetoric, calling for improving the business environment to make it more attractive to foreign investors. On January 17, Vice Premier Liu He gave a speech at the World Economic Forum in Davos, in which he stated that China will continue to promote market opening, and also called for attracting foreign investment.  It is therefore likely that the Two Sessions will take a pro-business stance, reduce restrictions on market entry, and promote policies to attract foreign investment. The appointment of Li Qiang as premier also gives credence to this line of thinking, as he is generally seen as being in favour of foreign business and investment.

Legislative changes and policy priorities

With economic growth and recovery at the forefront of the agenda for 2023, we expect that many of the legislative changes and policies announced during the Two Sessions will focus in large part on areas such as advancing industry development, production, and consumption.  This may mean that other long-term structural changes and policies that were previously outlined as priorities, such as Common Prosperity, may be placed on the back burner in 2023 (though certainly not scrapped).

We may instead see more policies aimed at propping up various industries, in particular strategic industries that the government has an interest in growing, such as healthcare, strategic tech sectors (e.g., semiconductors), green technology, and agriculture to improve food security and self-sufficiency, among others. With regard to industry policy, we may see further easing of the so-called “tech crackdown”, which saw tightening regulatory oversight of internet and tech companies in late 2020.

Over the course of 2022, the government made several moves indicating that it would ramp up support for the technology sector. In January 2022, government ministries released the Opinions on Promoting Standardised, Healthy, and Sustainable Development of Platform Economy, which endorsed the technological advancements and international expansion of tech companies. Later, in May of the same year, Vice Premier Liu He explicitly reassured tech companies that the government would support them in going public on domestic and overseas stock exchanges.  Although the Two Sessions may not deliver specific regulations or policy directives, it is possible that the language regarding the tech industry will be increasingly supportive and encouraging, which could in turn translate into concrete policies in the future.

Another major legislative change that we can expect to be finalised during the Two Sessions is the passing of the amended version of China’s Legislation Law. The draft amendments to the law were released for public comment in December and January, after having been reviewed by the 13th NPC. The amended Legislation Law will further devolve certain legislative powers to provincial and municipal governments, giving them more authority to draft regulations on matters such as urban and rural construction and management, environmental protection, and historical and cultural protection. However, certain details on the scope of powers and fields were not yet clear, but may be addressed in the final version of the law that is passed. Giving more discretion to local governments to formulate and implement rules could enable a more flexible regulatory environment, but inconsistencies across China could also complicate compliance procedures, in particular for large companies with operations across multiple jurisdictions.

An agenda for growth

Whatever the details of the GWR or the policies that are announced during the Two Sessions, the outcome of the meetings is almost certainly going to be a pro-growth agenda. This could mean promises of more support for industry, possibly through further tax incentives, more market access, and measures to boost consumption.
From a business perspective, the Two Sessions will also provide insight into the industries that are a priority for the government and help to answer key questions on how it intends to regulate and oversee the development of various sectors and businesses.  Business leaders and foreign investors are therefore advised to keep a close eye on the announcements that will emerge over the next two weeks. In particular, it is important to be aware of any major legislative or regulatory changes that could impact compliance, while looking out for potential opportunities and benefits.

Entering China is a key decision for businesses of all sizes. Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC can provide you with the platform to unlock your potential.

A version of this article was first published as ‘What to Expect from China’s 2023 Two Sessions and Government Work Report’ by Dezan Shira & Associates’ China Briefing.

The post What to Expect from China’s 2023 Two Sessions and Government Work Report appeared first on Focus - China Britain Business Council.

This years’ annual plenary meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) – also called the Two Sessions (or Lianghui in Chinese) – stood in sharp contrast to the general political atmosphere both in China and worldwide. While the country faces the worst Covid outbreak since the start of the pandemic and the world watches in horror at Russia’s invasion of Ukraine, China’s government is focusing – almost stoically – on its policy of fiscal consolidation and limited monetary support. 

Jobs and innovation remain Beijing’s answer to nearly all policy problems, and while this is good news for businesses, the focus on ‘stability’ also harbours new risks. A lack of consensus over the direction of Xi Jinping’s policy of ‘Common Prosperity’ and the uncertainty over Li Keqiang’s successor will make ‘reactive’ policy adjustments more likely, thus increasing uncertainty for both foreign and domestic businesses in China. 

Background 

First things first. China’s government wants its economy to grow by at least 5.5% this year. This is slightly lower than last year’s target of 6%. The figure itself came as scant surprise as Chinese provinces – which published their own targets ahead of the Two Sessions – had already zeroed in on the same objective. 

Yet as Chinese Premier Li Keqiang pointed out in his traditional press conference at the end of the Two Sessions, China’s ever-increasing GDP – which reached £13.8 trillion last year – makes it more difficult to reach the stellar growth numbers seen a decade ago. In fact, even a 5.5% increase would add around £760 billion to the Chinese economy – more than the whole economy of the Netherlands. 

Yet achieving this goal won’t be easy. Several analysts, including CBBC, therefore expected a significant monetary stimulus in the first quarter of the year. Yet the Chinese government has largely stuck to its supply-side oriented fiscal measures. As Li Keqiang explained at the press conference on 11th March, tax refunds and fee reductions are considered the fastest and most direct way to help businesses.

Nonetheless, China will transfer around RMB9.8 trillion to local governments and increase subsidies to cash-strapped localities by around 18% compared to last year. In total, government spending will rise by 12.8%.

Nominal GDP value change and official GDP growth (in %) (Source: National Bureau of Statistics, Xinhua)

But Li has also made clear that the extra money will focus on two things. First, social services, such as education, healthcare and better access of social services for migrant workers. Public spending on education should remain at around 4% of GDP, with a greater emphasis on reducing tuition fees for poorer kids. The government also wants to extend its basic healthcare coverage and raise coverage of treatment for the most common diseases to at least 70%. Finally, digitalisation of social services should make it easier for migrant workers to access social benefits. 

Second, local governments are expected to do more to help Micro- and Small Enterprises (MSEs). Those companies – which account for over two-thirds of Chinese private businesses – were particularly hit by the pandemic, especially in the hospitality and tourism sector. A survey conducted by researchers at Peking University in collaboration with the Ant Group Research Institute found that only 30.6% of MSEs have returned to pre-pandemic turnover levels. 

At the same time, MSEs have become the preferred solution to deal with unemployment. Rather than providing unemployment benefits – for which many local governments don’t have funds anyway – Chinese authorities have promoted self-employment as a way to keep people off the streets. Supporting these businesses via loans and tax cuts will therefore become an increasingly important task for Chinese policymakers.

Common Prosperity and jobs 

Indeed, job creation – rather than welfare benefits – remains the principal concern for the Chinese government. According to Li Keqiang, China needs at least 11 million new jobs every year for its college graduates alone. This year 10.76 million young Chinese are expected to graduate from an institution for tertiary education, including vocational schools. However, this excludes around 45% of the cohort who are entering the labour market directly upon – or even without – gaining their high school degree. On top of that, 300 million migrant workers as well 200 million gig workers will need stable employment, too. 

How does this tie in with China’s new policy of ‘Common Prosperity’ – the concept which emerged last year as a ‘guiding principle’ for the much-touted ‘New Era’. Concrete proposals for how this can be achieved were conspicuously absent from the week-long gathering. What’s more, ambitious reforms such as the planned ‘property tax’ have – once again – been shelved until further notice.

As noted in an earlier update on Common Prosperity, the Chinese government seems – at least for now – to be unwilling to significantly ramp up government benefits which could help create a modern ‘welfare state’ – as some Chinese economists have suggested. Instead, jobs, not benefits, remain the top priority.

New urban jobs added annually (Source: National Bureau of Statistics)

Regulatory risks 

While lower taxes and fees are good news, Chinese regulatory risks will continue to occupy board room discussions in both China and the West. Ironically, Beijing’s focus on stability heightens this risk. Keeping a ship steady in stormy waters – i.e. Covid, real estate woes, and geopolitical tensions – is more difficult if there is no clear long-term development plan. 

Even though more spending on R&D and ‘high-tech infrastructure’ is certainly helping some industries, Li’s remarks on job security underline the risk from weak consumer spending and a struggling real estate sector. Additionally, more ‘existential’ concerns, such as China’s collapsing birth rates – which drove last year’s bombshell decision to ban private tutoring businesses – add further uncertainty to China’s regulatory environment. As result, ad-hoc reversals and awkward policy implementation might well become more frequent. 

The CBBC View 

Despite its usual grandiosity, this year’s Two Sessions appeared to be more like a ‘farewell event’ for the current government under Premier Li Keqiang than a ‘rally’ for an ambitious reform push. Li himself admitted that this was his last Two Sessions as Premier and the unwillingness to leave unfinished business for his successor might indeed partly explain the stoic focus on financial stability and job security. 

Apart from this observation, there are two main takeaways for foreign businesses. First, the Chinese government’s focus on innovation and entrepreneurship as an answer to slowing growth is a positive sign for businesses. In particular, high-tech industries will benefit from China’s continued upgrading of manufacturing capacity, supply chains and digital communication technologies. Individual entrepreneurship also provides new opportunities for professional and financial services as small companies or individual founders will require expert support to run their businesses. 

The downside of Beijing’s emphasis on stability is that regulatory changes will become more ‘reactive’ and event-driven. Some of these events are ‘Grey Rhinos’ – to borrow Michele Wucker’s term for challenges which are obvious but neglected. This includes Covid and China’s struggling property sector. 

Other risks are less obvious. For example, Beijing’s worries over the country’s demographic decline and the desperate push to ramp up birth figures are much harder to gauge. Embellished statistics and obscure political rhetoric might be a boon for Western ‘tea leaf readers’, but also make it fiendishly difficult for businesses to adopt to sudden changes. 

While 2022 might therefore offer numerous new opportunities, it could also be less ‘stable’ than many are hoping for.

The post China’s ‘Two Sessions’ 2022: A CBBC Analysis appeared first on Focus - China Britain Business Council.

China’s annual Two Sessions kicked off on 4 March, and continues until 11 March. The name ‘Two Sessions’ refers to the double plenary sessions of China’s top legislative body, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference. The Two Sessions is one of the most important events in the country’s political calendar. The first session of the NPC started on Saturday 5 March, with Premier Li Keqiang presenting the Government Work Report.

The presentation of the Government Work Report is a highlight of the NPC plenum, as it provides a window into how the government considers itself to have performed over the last year, where it sees there to be room for improvement, and its policy priorities going forward into a new legislative cycle.

What is in the 2022 Government Work Report?

The most important information coming out of the Government Work Report is the development targets for the current year:

• GDP growth of around 5.5%
• Over 11 million new urban jobs
• Surveyed urban unemployment rate of no more than 5.5%
• Consumer price index increase of around 3%
• Growth in personal income that is basically in step with economic growth (5.5%)
• Steady increases in both the volume and quality of imports and exports and basic equilibrium in the balance of payments
• Grain output of over 650 million metric tons
• Further improvement in the environment, including:
  • Continued reduction in the discharge of major pollutants
  • Energy consumption per unit of GDP to be assessed with appropriate flexibility within the framework of the 14th Five-Year Plan
  • The exclusion of newly added renewable energy and coal, petroleum, and natural gas consumed as raw materials in the total amount of energy consumption.

GDP Target

China’s GDP target has long been a central feature of the Government Work Report, as it has taken on extra significance as a barometer informing Chinese officials, diplomats, analysts, and ordinary people alike of how the government is performing. This year, the government has set a target of 5.5%, which is the lowest economic growth target in more than a quarter of a century. Considering that last year the economy grew at a rate of 8.1%, this year’s target looks very low, even though it is in line with many provincial targets. Shanghai and Guangdong have published similar growth targets for this year.

Covid-19

No government’s review of its legislative performance of late would be complete without an assessment of its handling of Covid-19, and China is no exception. This year’s specific goal concerning Covid-19 is to “respond to Covid-19 and pursue economic and social development in a well-coordinated way.” R&D into mRNA vaccines is to be stepped up and efforts preventing cases coming in from aboard maintained, with a view to ensuring “the normal order of work and life.” The idea that China could change how it approaches Covid-19 was floated on several semi-official channels in the lead up to the Two Sessions, but the government has not given any official indication that this is on the cards.

Stimulus

The Chinese government is sticking to its supply-side policy and fiscal-oriented measures to stimulate the economy. The issuance of special-purpose bonds for local governments remains unchanged at RMB 3.65 trillion (£440 billion), the same as last year. But the central government will also allocate RMB 2.8 trillion (£335 billion) of special funds directly to provincial and local governments, which — according to Premier Li — should be directed towards projects which improve people’s wellbeing and remove weak links in areas that are important to people’s lives.

What’s in it for British business?

According to the Work Report, progress has been made in “develop[ing] the underlying institutions for a market system… [while the government] continued [the] implementation of the three-year action plan for SOE reform and supported the development of private businesses.”

What’s more, the government has set to “deepen reform and opening up in all aspects” as its fifth policy goal for 2022, placing it behind only those referring to the 20th Party Congress later this year. All of this is in the spirit of “promoting stable growth of foreign trade and investment.”

One disappointing point, however, is that on the Foreign Investment Law, the Work Report states that it will be “fully implemented,” whereas in previous years there was the intention to see the areas within which foreign enterprises could not invest cut further.

What’s next

While the work report represents the official and curated view of the Chinese government, the Premier’s press conference — which will be held towards the end of the Two Sessions — usually provides a more open and outspoken channel to elaborate on some of the government’s policy targets for this year.

CBBC will keep monitoring the Two Sessions and keep you updated on all major announcements and policy proposals.

The post What is in the Two Sessions 2022 Government Work Report? appeared first on Focus - China Britain Business Council.

The latter move has attracted most attention in the foreign media, owing to its unpredictable impact on the tense situation in Hong Kong and China’s relationship with the US. The former step, though, could have a far bigger impact on the business environment in China.

Civil Code

The Civil Code, which will take effect on 1 January 2021, is China’s first comprehensive legal framework for personal and private property rights, and includes laws regulating contracts and torts. The Chinese government has tried to establish a civil code since the 1950s: the current legislation, which was first introduced in 2014, is its fifth attempt.

During the six-year-long process, the code attracted widespread attention and lawmakers received over 900,000 public comments.

Although it is largely based on existing laws, eg the 1986 General Principles of Civil Law, and does not cover disputes between private parties and state entities, the new code removes inconsistencies and establishes a common legal terminology. It also clarifies contractual obligations and liabilities, especially for non-incorporated businesses, thus enhancing their legal protections.

While there might be few immediate consequences, the passing of the code itself marks a milestone in China’s legal development. It firmly entrenches individual and property rights in the country’s legal system.

Li Keqiang: Economic recovery is top priority

As in previous years, the Two Sessions ended with a press conference given by Chinese Premier Li Keqiang. Li defended the government’s decision not to set a fixed economic growth target for this year, adding that to do so would have been unrealistic given that the global economy is expected to shrink by 3 percent in 2019. Nonetheless, he was optimistic that China would achieve positive growth by the end of 2020.

Li announced that the government would inject a total of RMB 6 trillion (£680 billion) into the economy. One-third of that would be in the form of special bonds, whereas the rest would be achieved via tax cuts and other cost reductions. In total, these cuts should free up around 10 percent of Chinese aggregate annual income of RMB 40 trillion (£4.55 trillion).

The Premier repeated that this stimulus effort would be more targeted than the indiscriminate post-GFC stimulus effort which China launched in 2008, and which led to massive infrastructure spending, as well as multiple asset bubbles. Instead, most of the money will be used to safeguard jobs, and to broaden China’s social security net, he said.

Li made special mention of the 8.57 million graduates who are expected to enter China’s job market this year, as well as the country’s 200 million migrant workers. He also expects that the number of people relying on basic social transfer payments – currently estimated at around 60 million – will probably increase. Local governments should therefore use the additional funds to protect these vulnerable groups, he said.

Boost private businesses

The premier also stressed the importance of China’s private sector and the role of Chinese SMEs. According to Li, these firms provide 90 percent of total employment in China and should receive 70 percent of the government’s additional funding.

Pointing again to the difference with previous stimuli, Li said the extra money injected by the government would be aimed primarily at keeping these 120 million businesses afloat and at creating a fertile ground for new business ventures. The ultimate objective, Li said, is to create 20,000 newly registered companies per day this year.

On foreign trade and investment

Finally, Li highlighted the importance of foreign trade and investment. He stressed that the Chinese government remains committed to further opening up its economy and to collaborating with neighbours – South Korea and Japan in particular – to deepen economic integration. He indicated that China remains committed to its goal of concluding the Regional Comprehensive Economic Partnership this year, which would establish a free trade agreement between 15 regional countries, including Australia and New Zealand.

Li’s reassurance to foreign business follows an article published on Monday by the economic editor-in-chief of the People’s Daily, Lu Yanan, who emphasised the importance of FDI for the Chinese economy. Lu noted that big-ticket investments, such as energy projects and advanced manufacturing, are a significant part of China’s recovery strategy.

CBBC View

The outcome of this year’s Two Sessions highlights, above all, the seriousness of the economic impact of COVID-19. The government’s main concern clearly lies with protecting local businesses and shielding the Chinese economy and vulnerable economic groups from the looming global recession.

While there is disappointment among some China watchers about the lack of market-based reforms, the government’s cautious attitude is probably warranted, given the high degree of uncertainty. Chinese leaders want to play safe before committing themselves to new growth targets.

Li’s restraint with regard to a large monetary stimulus also reflects both the split attitude within the Chinese leadership (CBBC has written about this before) as well as the painful lessons learnt from previous rounds of economic stimulus, which have led to major misallocations of capital and numerous asset bubbles.

Nonetheless, Li’s particular emphasis on the private sector and China’s social welfare safety net are positive signs because they address two major structural problems: the persistent bias of local governments and banks towards favouring state-owned enterprises, and China’s insufficient social protections, which suppresses consumption. If the short-term measures announced during the ‘Lianghui’ are followed-up by a general and long-term policy shift, the government’s prudent approach could indeed succeed in setting China’s economy on much more sustainable path.

The post Two Sessions passes Civil Code and RMB 4 trillion fiscal stimulus appeared first on Focus - China Britain Business Council.

This year’s Lianghui is particularly important given the ongoing pandemic: confirmation that it is taking place in May will be seen as a key marker in China’s process of getting back to normal. The full announcement by China’s National People’s Congress (in Chinese) can be read here.

Key Topics

During the ten day congress, the around five thousand members of the National People’s Congress (NPC) — whose opening ceremony is scheduled for May 22nd — and the Chinese People’s Political Consultative Conference (CPPCC) will convene in China’s capital to discuss and approve major legal and political decisions.

This year’s economic growth target will be set during the meetings. After the economy’s 6.8 percent year-on-year drop in the first quarter, the full year target will be closely watched as a signal about the health of the world’s largest economy.

The target will also indicate whether the Chinese leadership believes that it can achieve its long-term goal of doubling the country’s GDP by the end of 2020 compared to its level in 2000-level, and thus also attain its aim of establishing a ‘moderately prosperous society.’ After a revision of economic data last year, China would need at least 5.9% growth this year to reach this goal.

Achieving this goal has been a top priority for China’s President Xi Jinping, even though the sudden outbreak of COVID-19 has cast serious doubt over its feasibility. There has therefore been some talk of the government setting an unprecedented ‘two-year’ growth target, which would take the current crisis into account, but which could also create conflicting policy objectives for local policymakers and state-owned enterprises.

Besides growth forecasts, the Two Sessions will also pass the annual budget for China’s central and local governments and discuss and approve major legislation.

Foreign businesses should particularly pay attention to the pending amendment to China’s patent law as well as recent initiatives around China’s anti-monopoly law, the new energy law, and other regulations related to the implementation of the country’s new foreign investment law.

Nearly 3,000 party officials convene at the annual meet to discuss new laws

Background

The ‘Two Sessions’ meetings occupy a central position in China’s political calendar. The plenum of the NPC, whose 2,980 members convene only once a year, elects and confirms major government positions, including the Premier (currently Li Keqiang). It’s also the only body with the authority to pass and change laws in China.

The most significant recent NPC plenum meeting took place in 2018 when it not only amended China’s constitution – getting rid of previously enshrined term-limits for the country’s president – but also decided on a fundamental reorganisation of the central government’s ministries and agencies. Last year, the NPC passed a major new Foreign Investment Law.

The CPPCC, on the other hand, is the central pillar of the so-called ‘United Front’ which links the country’s main civil, professional, and cultural associations to the ruling Communist Party. Similar to corporatist structures in other countries, the CPPCC’s main function is to provide input and feedback on major policy initiatives.

The ‘Two Sessions’ first took place in September 1954 but moved to March in 1985 to make annual budgeting and economic planning easier.

Further Coverage

CBBC will be providing analysis for our members following the conclusion of Lianghui – including a webinar with Trivium and readouts from our policy team.

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