Last week, Trump announced sweeping tariffs on steel and aluminum imports, provoking sharp criticism from Canada and the European Union, and sparking fears of a trade war.
At the opening session of the annual meeting of the National People’s Congress, Li Keqiang painted a picture of a China on a courageous path of economic reform and trade liberalization in the face of rising global protectionism.
Li said China, which restricts foreign investment in many sectors, would open up its economy to foreign investors and its markets more widely to foreign trade, echoing promises made in previous years’ speeches. More generally, the premier vowed that China would be “bolder” in reform.
“Reform and opening was a game-changing move in making China what it is today,” Li said, adding that it “remains a game-changing move” as China seeks to build what it calls a “great modern socialist country” by the centenary of the founding of Communist China in 2049.
“We must go further in freeing our minds, in deepening reform and in opening up,” he said. “We need to give full play to the pioneering drive of the people and encourage all localities, based on their own conditions, to dare to explore, dare to try things out and dare to confront the toughest of issues.”
The irony is that, in some ways, China may be moving in the opposite direction, experts say.
Not only has its investment and trade opening largely stalled, with foreign investors increasingly grumpy about what they view as an uneven playing field, but the room for local officials to think freely, to adapt and explore — considered a key factor in China’s past economic success — may have shrunk in recent years. Meanwhile, the space for free speech, academic debate and advocacy also has been significantly curtailed.
“They’ve said the same thing for the past five years, so it’s difficult to take it seriously,” said Christopher Balding, an associate professor at the HSBC Business School in Shenzhen. “But what they seem to have learned is that if you say the rhetoric, it gets people’s attention, even if it is fundamentally untrue.”
Trump’s protectionist rhetoric, however, had allowed China an opportunity to seize the high ground, “even if the reality is very different,” Balding added.
Li’s speech also was full of references to the need to rally further around the “core” leadership of President Xi Jinping and to follow Xi in thought and action even more closely. An anti-corruption drive that has dragged down tens of thousands of officials has ensured much stricter loyalty to Xi’s ideas and orders, experts say.
In this two-week session, the National People’s Congress is set to approve changes to the constitution that will remove the two-term limit on the presidency and enshrine “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” in the Communist Party’s guiding document, further cementing Xi’s position as the most powerful Chinese leader in decades.
One of Xi’s central ideas is that the Communist Party should play a leading role in every aspect of the nation’s life, including in culture and the economy.
Li vowed to “completely open up” the general manufacturing sector and allow more access to sectors such as telecommunications, medical services, education, elderly care and new-energy vehicles. But experts said the proof would come when those promises were acted upon.
“The premier’s comments about deepening reform will need to produce tangible results to get the attention of the business community,” said Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai. “This means giving more play to market forces and addressing the long-standing market-access issues that unfairly disadvantage foreign companies.”
Despite the contrast between the rhetoric coming out of Beijing and Washington, the reality is that U.S. markets remain far more open than Chinese ones.
The World Bank’s Ease of Doing Business Index ranks the United States in sixth position out of 190 countries and China in 78th, while the Heritage Foundation’s Economic Freedom Index ranks the two countries in 18th and 110th place, respectively, out of 170. On Internet and press freedom, the contrast is even more marked.
In his speech, Li said China was “fighting three critical battles”: to forestall economic and financial risks, to step up poverty alleviation and to make greater progress in addressing pollution. He vowed, as he has before, to cut taxes and red tape for businesses, improve broadband Internet access and make China “a country of innovators.” But there is no cause for alarm on the economy, he said.
“The fundamentals of the Chinese economy remain sound, and we have many policy tools at our disposal,” he said. “We are fully capable of forestalling systemic risks.”
In October, central bank governor Zhou Xiaochuan warned that China needed to take action to prevent a “Minsky moment” — a sudden collapse of asset prices after a long period of growth.
That was an uncharacteristically blunt comment from a Chinese official that suggested deeper concern behind closed doors about growing financial risks around rising levels of debt and high asset prices, Balding said. Meanwhile, a recently announced bailout of Anbang Insurance Group could cost $50 billion, he said.
Nevertheless, Li noted that China’s economy had grown at an annual average rate of 7.1 percent over the past five years. The 2018 growth target has been set at about 6.5 percent.