China aims for a 5% economic expansion this year and plans a 7.2% rise in military spending. These two figures, among the most anticipated as the National People’s Congress begins, signal continuity in a context more strained than last year. The economy needs urgent reforms, and there is little expectation of calm if Donald Trump returns to the White House.
Arid times lie ahead, the prime minister Li Qiang told 3,000 delegates at the Great Hall of the People on Tuesday morning. He dissected the current state of the nation with a stubborn emphasis on the economy that lasted forty minutes. The clarity was welcome, especially after years when speeches stretched to nearly two hours and bored delegates and reporters alike. The address was as blunt and pragmatic as it was aware of the country’s strengths in meeting its challenges.
“By setting a growth target of 5%, we acknowledged the need to boost employment and incomes and to prevent and minimize risks,” Li explained. “It will not be easy. After the three years of pandemic impact, many difficulties must be solved to achieve a recovery.” Last year Beijing forecast a growth “around 5%,” which came in with two tenths to spare. The current challenge raises questions among experts, and the International Monetary Fund recently projected 4.6%. Excluding the pandemic years, China’s forecasting track record remains remarkably precise.
Herculean Challenges
The remaining tasks are substantial: stabilizing the real estate sector, trimming local government debt, stimulating employment and domestic demand, and increasing birth rates, among others. None of these issues is new, but time has worsened them. The most pressing is the real estate crisis, with developers loaded with unpaid loans and little capital to finish sold homes. The crisis dampens domestic consumption since housing accounts for about 70% of household wealth, and its value has tumbled.
The approach is clear: the state acts as the guide. Old promises to give more room to the private sector faded away, and the current Marxist discourse runs in the opposite direction. The lexicon now includes the “new productive forces of quality,” a term introduced by the president, Xi Jinping, in December that is gradually taking shape. Its core lies in innovation across industries such as clean energy, electric vehicles, artificial intelligence, commercial aviation, and semiconductors and chips. The budget for science and technology rises by 10% this year.
Past large stimulus packages are no longer in play; Beijing relies on surgical adjustments. February saw the reserve requirements for banks cut, and a trillion yuan flowed into the market to stimulate activity in the hardest-hit sectors.
“Independent” Foreign Policy
China will continue with its foreign policy described as independent and peace-oriented, opposing acts of bullying and hegemony, Li noted in a subtle jab at Washington.
Beijing watches with concern the growing military alignments the United States maintains in its neighborhood and expects more tension as elections approach. In that climate, defense spending was kept at 7.2%. While it is common for this figure to alarm global observers, a closer look suggests calm. China’s military expenditure amounts to about 1.3% of its GDP, well below the 2% NATO benchmark and far from the 3.4% seen in the United States, which sits worlds away from China.