China's ‘two sessions' meetings provide important signals on policy areas that matter to Australian businesses.
The annual two sessions conference is where both China’s legislature, the Chinese National People’s Congress (NPC), and the top political advisory body, the Chinese People’s Political Consultative Conference (CPPCC) meet (but not with each other). The NPC is made up of almost 3000 deputies from all parts of the Chinese mainland, plus Chinese Hong Kong and Macau, and representatives from the People’s Liberation Army. The CPPCC is a forum for non-government political parties, youth organisations, trade unions and other stakeholder groups to debate and comment on proposed laws.
The main challenges ahead for China
The 2023 iteration highlighted Beijing’s challenges in addressing near-term, foundational security issues, like food security, the financial sector, and building domestic capabilities in manufacturing and technology, while at the same time dealing with climate change as a risk multiplier, further driving insecurity. Analysts noted considerable wariness and uncertainty towards the West, particularly the United States.
To address these complex challenges, President Xi has made substantial changes to high-level government personnel. Except of course for one major continuity – the reaffirmation of Xi himself for an historic third term in his role as what in English is known as the ‘president’ of the People’s Republic of China. This follows his reappointment at the five-yearly Party Congress in October 2022 in the two most important of his three formal titles, Chinese Communist Party (CCP) general secretary and military commission chairman.
New appointments to the State Council Executive Committee have resulted in the largest turnover in its history (not to be confused with appointments to the ultimate decision-making body, the Politburo, which happened late last year).
A key personnel move was the appointment of new premier Li Qiang, who was chief of staff for Xi Jinping from 2004 to 2007. During the two sessions, Li presented his perspective on challenges like inward flows of business investment (“most foreign companies are still optimistic about their development prospects in China”), high unemployment (“from a development perspective, young people can inject energy and vitality into our society”), demographics (“we should look at …the scale of the high-calibre workforce”), and the private sector (“great opportunities for private entrepreneurs”). He also highlighted the government’s focus on the need for greater agricultural self-sufficiency, to ensure “the rice bowl of the over 1.4 billion Chinese people will always be firmly held in our own hands.”
Policy – domestic
President Xi’s reappointment means that what we’ve seen over the past ten years as his own understanding of what China needs to do and how it needs to do it will likely set the policy agenda for the next five years at least, and with a renewed sense of confidence.
Many of the new members of the 10-member State Council Executive Committee are first-time appointments, and most are considered to be highly loyal to President Xi. Some see this as potentially leading to policy groupthink, arbitrary decisions, and heightened uncertainty. Others argue that, given most of the appointees are highly capable technocrats, Xi Jinping’s trust in them may actually create room for them to manoeuvre and experiment with positive policy outcomes.
As well as the personnel appointments, substantial institutional changes were announced, aimed at increasing party-state control over key industries like finance, tech and science. These new bodies reflect President Xi’s focus on financial stability and the need to boost China’s technological self-sufficiency. The new National Financial Regulatory Administration will report directly to the State Council, and replace elements of the central bank and financial services and insurance regulator. A new data bureau is being created, and there will be more centralised control over China’s science and technology sectors. There may also be a resurrection of the Central Financial Work Commission, a separate, party-controlled financial watchdog.
Policy – international
President Xi’s focus on the international arena as a source of insecurity and vulnerability for China was clear from his speeches this year. The president referred to the “hurts” inflicted on China by “bullying foreign powers”, stating that the party had now “wiped clean” this “national humiliation”. Identifying the West as the source of China’s challenges has been a long-established narrative of the Chinese party-state. Xi’s comments suggest an escalation in China’s concerns about the risks of a hostile global environment, at the same time as indicating a conceptual shift towards China achieving the ‘Chinese Dream’ of rejuvenation under Xi’s leadership.
What does it all mean for Australian business?
What this all adds up to for Australian business is a China that is likely to continue to be able to manage the challenges it is facing, and maintain its fundamental stability. Growth may not be as extraordinary as some are hoping and forecasting, but it will likely still be positive.
At the same time, the meetings indicated continuing tensions in China’s relationship with the West. This should be cause for alertness around the Australia-China bilateral relationship. While the relationship may have recovered somewhat from the low point of the early pandemic, significant challenges remain.
At a more detailed level, policies aimed at achieving greater self-sufficiency may drive changes in Chinese demand for some Australian exports, especially those – like critical minerals, metals and energy – that are part of strategic industries such as defence and advanced technology. China’s success – or otherwise – in addressing its banking and financial challenges will impact its property sector, with implications for the overall health of the global economy and Australian commodity exporters. The modest GDP targets indicate that the hoped-for recovery in Chinese demand for some Australian exports may be slower than anticipated, although government-supported investment in key sectors may create exceptions. The geopolitical competition around energy security may see China restricting exports of critical inputs to technology products, creating global supply and price pressures for these goods.
2023’s two sessions clearly show the importance for Australian businesses to continue to invest time in tracking and understanding China’s geopolitical circumstances.