BEIJING — The setting for the Chinese Communist Party’s annual confabs this year, when the party will celebrate the 70th anniversary of the foundation of the People’s Republic, could hardly have been more inauspicious.
The economy is slowing palpably. A trade war with the United States is rumbling on. And there are persistent whispers about President Xi Jinping’s handling of both. Even the air was a foul-tasting soup of gray as the National People’s Congress opened Tuesday.
“Looking out the next 12 months, Beijing sees the possibility of a significant deterioration in the economy,” said Jude Blanchette, head of the China practice at the Crumpton Group, a business intelligence firm. “There’s an increasing consensus in the private sector that Xi is mismanaging the economy, which has sparked an uptick in discontent over his leadership.”
But the party tried to put a positive spin on China’s outlook while acknowledging the realities when the annual parliamentary meeting opened Tuesday.
“China faced a complicated and challenging domestic and international environment of a kind rarely seen in many years, and its economy came under new downward pressure,” Premier Li Keqiang told the 2,948 deputies from around the country who had gathered in the Great Hall of the People, the majestic ceremonial building that runs along one side of Tiananmen Square.
For 97 minutes, Li held forth about the government’s various plans for the year ahead, from fostering innovation and combating climate change to clamping down on “hedonism” and “pointless formalities and bureaucratism.”
And he tried to lower expectations about the economic prospects for the year ahead, partly by indirectly blaming President Trump.
“Setbacks in economic globalization, challenges to multilateralism, shocks in the international financial market, and especially the China-U.S. economic and trade frictions, had an adverse effect,” he said.
Li said it would be a “tough struggle” to get to the government’s forecast growth of between 6 and 6.5 percent this year — down slightly from the 6.6 percent recorded last year.
That growth rate might look rosy for developed countries, but for China, it’s a far cry from the stimulus-fueled 12 percent recorded at the beginning of 2010.
“It’s not about the top line growth rate itself, which is just a measure of economic activity,” said Katie Stallard, a China-focused fellow at the Wilson Center. “With the current economic downturn, alarm bells are undoubtedly going off in Beijing, as the Communist Party has made improving living standards part of the rationale for its regime legitimacy.”
The economy is now growing at its slowest rate in about 30 years — since the West imposed sanctions against China as punishment for the Tiananmen Square crackdown in 1989.
That means many Chinese are experiencing a decline in living standards for the first time in their lives.
“If you’re under 45, you’ve only ever known a rising China,” said Randal Phillips, a former CIA station chief in Beijing who now leads the Mintz Group consultancy practice in Asia. “You’ve always known that next year is going to be better than last year. That’s not true anymore. There are now strains in the economy.”
Evidence of the slowdown is everywhere.
A measure of factory activity, the Purchasing Manager’s Index, has fallen to its weakest level in three years, while cellphone shipments were down 13 percent in January. Car sales fell 16 percent in January, marking seven straight months of decline, and the number of unsold houses now sits at the highest in two years.
“Consumers were supposed to be the saviors of the economy, but Chinese households have fast-growing debt burdens because of mortgages and car loans,” said Jörg Wuttke, the former head of the European Union Chamber of Commerce in China.
Companies ranging from lenders and property developers to ride-hailing services and online shopping ventures are embarking on large-scale layoffs.
“My old factory job was not stable because the business was not good and government environmental regulations were getting stricter,” said 37-year-old Zhao Zhenguang, who recently attended a job fair in the Beijing suburb of Daxing. “So I decided to leave before they factory failed.”
As the economy slows, Xi and the party appear to be “hardening the system” to prepare for any increase in grumbling, Phillips said.
The Communist Party, which studied the collapse of the Soviet Union and has been keeping a close watch on the situation in Venezuela, is on high alert for any signs of unhappiness. The party is well aware of communist revolutionary leader Mao Zedong’s famous saying: A single spark can start a prairie fire.
“Xi absolutely believes that you have to put out the spark,” Phillips said.
Fortunately for the party, Xi’s efforts over the past six years at increasing security controls have proved very effective at putting out sparks.
Under his leadership, Chinese authorities have deployed technologies such as facial recognition and even gait recognition to monitor the population. Protests are snuffed out before they begin, and potential troublemakers rounded up.
“I think one of the reasons that Xi has been building what we might call a ‘disciplinary state,’ in which the party has the power to pull everyone into line, is precisely in readiness for the kind of disruption that a sharp economic downturn could bring,” said Richard McGregor, author of “The Party: The Secret World of China’s Communist Rulers.”
Beijing has had a lot of experience in dealing with protests and protesters over many years of economic displacement.
“They have since built up paramilitary police forces so they don’t have to rely on the army,” McGregor said. “They have also learned, through a mixture of bribery and soft coercion, to disperse or defuse protests before they get too big and out of hand.”
But Beijing has limited ability to spend its way out of this downturn as it did when the global financial crisis struck in 2008.
Then, China put out any sparks by going on a $586 billion, debt-fueled spending spree to bolster the economy. It poured $220 billion into transport infrastructure investment alone.
It does not have that kind of money anymore because debt levels are now equivalent to 244 percent of gross domestic product, or $34 trillion. “The economy is slowing, and the toolbox is getting smaller,” Wuttke said.
Li, the premier, has said explicitly that the government would not spend itself out of this economic hole. “Facing new circumstances and developments, we were firm in choosing not to adopt a deluge of strong stimulus policies,” he said Tuesday.
But the slowdown, and the Trump administration’s trade war, are laying bare the contradictions in the party’s policies. The party has set a goal to create a “moderately prosperous society,” but it cannot do that, reduce the debt burden and meet ambitious growth targets at the same time.
So as the growth has slumped, the central controls have increased.
“In the U.S., we answer every question with ‘liberalize.’ But China is the mirror opposite. For every risk they take, the policy answer is ‘more control,’ ” said Scott Kennedy, a China expert at the Center for Strategic and International Studies.
“China was already a pretty tight place, and that predates Xi, but it’s become worse under him,” Kennedy said.
One example: All 25 Politburo members had to submit reports to Xi last week, describing their work over the past year and reporting how they had followed the president’s instructions to solve problems.
Premier Li said Tuesday, as the president sat at banks of desks on the stage of the Great Hall of the People, that China has followed Xi’s guidance.
“Struggle creates history; hard work makes a bright future,” he said. “We will . . . follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, rise to each challenge, and create new progress.”
Lyric Li and Liu Yang contributed to this report.