China lowers growth forecast in face of fresh challenges

China's ruling Communist Party met in the Great Hall of the People on Sunday for its annual parliament with a pledge to continue reform in the face of serious challenges while lowering its economic growth target and reining in military spending.

"China's economy is like a butterfly trying to emerge from a chrysalis – there is promise but it cannot be achieved without pain," Premier Li Keqiang told nearly 3,000 delegates at the National People's Congress in the cavernous hall at the heart of Beijing.

Outside the enormous socialist-realist building on Tiananmen Square, the sky was a crisp blue, as strong winds kept smog at bay. Pollution was high on the agenda as the premier delivered the party’s work report to the cadres.

The response to the speech was extremely positive, as it always is, but the tone is more muted this year because China is facing fresh challenges, both from within in the shape of debt problems and sluggish reform, and from overseas, largely in the form of protectionist threats from President Donald Trump's America.

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Transformation

As well as walking tall politically, China is also keen to improve the quality of its economy and give real substance to back up its position as the world’s second biggest economy. The speech was liberally peppered with references to innovation and transformation.

“The real economy has always been the foundation of China’s development. The task we now face is to speed up its transformation and upgrading,” he said.

China's gross domestic product expanded 6.7 per cent in 2016, the slowest in 26 years, and Mr Li targeted growth of 6.5 per cent in 2017 which he said was "realistic and in keeping with economic principles".

While the NPC, which with the meeting of the CPPCC is part of the annual “two sessions” parliament, is carefully stage-managed and unlikely to yield any massive surprises, it does give a useful insight into the priorities of the Communist Party.

State debt

Mr Li’s speech clearly showed the government was taking on board comments about the build-up of state debt, which have sparked fears about bubbles in the economy and runaway government spending.

A pledge to cancel mobile rates for domestic roaming and long-distance calls prompted a ripple of excitement.

There was a renewal of the government’s pledge to push on with reform of state-owned firms, shuttering more of the “zombie” companies, or inefficient, debt-burdened enterprises.

Mr Li said China would fight any efforts to make self-ruled Taiwan independent, a theme that has taken on new urgency since Mr Trump spoke by telephone to the island's president, Tsai Ing-wen, whose ruling Democratic Progressive Party has a pro-independence stance.

“We will never tolerate any activity, in any form or name, which attempts to separate Taiwan from the motherland,” Mr Li told the delegates.

On Saturday, spokeswoman Fu Ying said China would expand military spending by about 7 per cent this year, which is a slower rate of increase than in previous years, saying it was sufficient to protect China’s “rights and interests”. She did not give a total figure for the defence budget.

"Military spending for 2017 will be equivalent to about 1.3 per cent of the country's economic output, roughly the same proportion as in recent years," Ms Fu said, adding that it was still far lower proportionally than that of the United States.

Regional colour

There were some remarkable costumes on display at the NPC, as cadres wore the traditional clothing and headwear of the provinces and autonomous regions they represent, breaking up the sea of blue suits and military uniforms that populate the NPC.

China was committed to creating at least 11 million new jobs this year and keeping the urban registered unemployment rate below 4.5 per cent.

It also pledged to do more to make the environment easier for foreign firms operating in China – an issue bodies such as the European Union Chamber of Commerce have long complained about.

Sectors such as service industries, manufacturing and mining would be more open to foreign investment, and allowed to take part in national science and technology projects.

Parliamentarian Zhang Zhao’an called the 6.5 per cent target “reasonable, pragmatic and reachable” in the context of China’s ‘new normal’ of more modest, sustainable growth.

“You have to take into account the large base figure of China’s economic aggregates. The moderate adjustment of the target signals a greater focus on the quality and returns of economic growth,” Mr Zhang, who is vice president of Shanghai Academy of Social Sciences, told the Xinhua news agency.