The Chinese government recently held its most important policy meeting of the year in Beijing, known as the “Two Sessions”, in which they set their economic goals for 2023.
This occurred almost parallel to the episode of financial panic and bankruptcy of Silicon Valley Bank, which, although it seems to be on track, does not stop reverberating in all the American regional banks and in large European banks. Even if a systemic crisis is avoided by avoiding the worst monetary scenario implemented to curb inflation. Consequently, at least in the short term, the best hopes for a boost to the global economy come from a possible rebound in activity and demand in China.
But what can we expect from the Asian giant, and what will it mean for the rest of the world?
After a 2022 of low growth, (officially, 3% in the year as a whole) as a consequence in large part of the blockades due to the “zero covid” strategy, the Year of the Rabbit has started with better prospects: restrictions are a thing already from the past, rising faster than anyone could have expected a few months ago.
But in addition to the end of the confinement there are other factors that will boost growth in 2023, the fundamental one being the turn of the authorities to recover greater pragmatism and less ideology in the formulation of economic policies.
The political evolution in China can be understood as a search for acceptance of the Regime and its policies. Following the Tiananmen protests and massacre of 1989, an implicit agreement was reached between the Chinese Communist Party and the Chinese population on the legitimacy of the former: the people would accept authoritarian rule if, in return, they could enjoy better prospects and higher standards. of life, which came hand in hand with an opening of the economy and liberalization of market forces. However, as the country grew richer and the most basic needs were covered, economic growth has been losing power as a source of legitimacy, and has tried to be replaced by new sources of legitimacy; specifically, an emphasis on the reduction of inequalities and economic rebalancing under the slogans of “common prosperity” or “dual circulation”, and the guarantee of security against a more aggressive external environment. This, moreover, connects with the more nationalist discourse of President Xi.
Well, the current return of pragmatism and more growth-friendly policies supposes Beijing’s recognition of a painful reality; that, without a sufficient increase in the size of the overall economic pie, it will find it impossible to achieve its broader goals of income redistribution and security.
Thus, in 2023 Beijing seems ready to forget, or at least relax, the regulatory repression and public battle that began in 2020 against the technological giants in particular, but also against a large part of the private sector (which generates most of the employment), a battle explained in part by fears that his growing power is a threat to Party control. It is not that the Communist Party no longer wants to exercise control, but that it seeks to do so in a way that is more inconspicuous and does not penalize market sentiment. It does so now by buying “golden shares”, small stakes in private companies, such as the 1% stake that a Beijing cyberspace watchdog fund recently took in the digital media unit of the giant Alibaba. But these shares grant seats on the government board and are useful tools for influencing business decisions and keeping them aligned with government goals.
Also in recent months there has been a softening of those previously imposed to contain the excesses of the real estate sector, when Xi measures proclaimed that “residential property is for living, not for speculating”, Now, before the evidence of strong negative side effects due to the adjustment of the sector, it seeks to facilitate financing conditions for developers and support the completion of unfinished housing projects, which were the cause of the boycott of mortgage payments earlier this year.
Pragmatism is also noticeable in the fiscal sphere. Although the fiscal deficit target for 2023 is 3%, which is not a big change from the 2.8% target in 2022, if there are changes in focus. In 2022 the shortfall will be explained by costly containment and tracking of Covid-19, as well as massive tax relief that was intended to help businesses survive the disruption caused by those strict controls. Instead, in 2023 the government appears poised to revert to its old playbook of increasing infrastructure spending and consumption to support the economy.
My interpretation of the official growth target set for this year of “around 5%” (as opposed to a 5% ceiling) is that the authorities want more than 5%, and that they think it is possible, but They don’t want to commit to something that will cause them to miss their goals two years in a row. If they default, you can always blame the Western banking crisis.
