The national legislature: Caretaker of the chrysalis
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Mar 9th 2017 | SHANGHAI
LI KEQIANG is a master of metaphors for painful economic reform. In 2013, his first year as prime minister, he told the National People’s Congress (NPC), China’s rubber-stamp parliament, that reform required the courage of a “warrior cutting his own wrist”. At the NPC’s annual gathering in 2015, he described it as “taking a knife to one’s own flesh”. On March 5th, at the opening in Beijing of this year’s 11-day meeting of the legislature, he was less gory, calling it “the struggle from chrysalis to butterfly”. Mr Li (pictured, right) deserves full marks for his range of imagery, but reforms on his watch have been less impressive. This year’s parliamentary session has highlighted one big reason for Mr Li’s limited accomplishments: his limited power.
For the past three decades, China’s prime ministers have presided over the country’s economic affairs. But the 3,000 delegates who are meeting in Beijing know that President Xi Jinping (pictured, left) calls the shots on the economy these days. At news conferences, many officials have praised Mr Xi as the “core” of the Communist Party, a title that was granted to him last year in recognition of his primacy (though he still has critics; see article). Mr Li paid tribute to the president’s “sound leadership”.
Mr Xi’s status as China’s most powerful leader since Deng Xiaoping has given this year’s NPC meeting a feeling of the unreal. More ceremonial than substantive at the best of times, it now seems even more of a sideshow to what truly matters in Chinese politics. The big event in 2017 will be a quinquennial party congress towards the end of this year, when Mr Xi is expected to solidify his power by giving important jobs to his allies. Whether he will support Mr Li for a second term as prime minister is a subject of much speculation.
The approaching party event is casting a shadow over policymakers. Mr Li clearly sees it as his mission to ensure nothing goes wrong in the run-up. The economic targets he announced suggested his preoccupation with stability, even if that were to mean slightly lower growth. After aiming for, and achieving, 6.5-7% growth last year, Mr Li said China would shoot for “about 6.5%” this year. While that might sound like a tiny tweak, it sends a message that the central government wants restraint. It does not want to encourage local authorities to splurge on wasteful investments (as they are wont to do given the slightest of signals from Beijing). Mr Li is wary of overheating and a further build-up of already massive levels of debt.
Other targets revealed at the NPC were similarly conservative. After a widening of the budget deficit for three straight years, the finance ministry wants to keep it to 3% of GDP in 2017, the same as last year. The central bank called for slower growth in the money supply. And most strikingly for a government accustomed to spending ever more on infrastructure, the amount of money it plans to spend on building railways and roads in 2017 is the same as last year. It helps that, after a big dose of fiscal and monetary stimulus in 2016, the economy is growing strongly. The stockmarket is also rallying and the currency, long under pressure to devalue, is holding steady.
But Mr Li was candid about dangers that still lurk after a decade of debt-fuelled growth. He sprinkled his report with references to financial risk. In recent weeks, the government has started to devote more attention to curbing it. A mild increase of short-term interest rates by the central bank has rippled through the bond market, forcing investors to pare back risky bets. In February Guo Shuqing, a blunt-talking official, took over as bank regulator. It was a sign that the government is getting more serious about cleaning up the debt-entangled financial system.
Yet on how to proceed with reform, Mr Li had little new to offer. He said state-owned enterprises should be more competitive, but shied away from suggesting they be privatised. He promised that China would improve the market for rural land, but said nothing about letting farmers own it. He did not even raise the idea of levying a property tax, which officials have previously touted as a possible way of patching up local budgets (such taxes would be bound to anger middle-class Chinese).
This is the kind of painful change that China needs if its economic transformation is to continue successfully. But it is not the stuff of this year’s parliament. Mr Li’s job is simply to ensure that the chrysalis stays healthy. Mr Xi and the party congress in a few months’ time will have much more say over how to transform the pupa into a butterfly.
