China's Congress will begin its annual meetings this week. Two key priorities will be economic agenda setting, and cracking down on restive Hong Kong. Communist officials are likely to propose new rules on who can run for public office in Hong Kong, to make certain only Communist-friendly "patriot" candidates can stand.
There will be an avalanche of propaganda out of the event. The snowball is already rolling on the importance of "patriots governing Hong Kong," with Beijing's representative in Hong Kong repeatedly stressing those exact words -- translation: politicians who support the Chinese Communist Party -- at a symposium across the border in Shenzhen on Sunday and Monday.
It's the second time in as many weeks that Xia Baolong, the head of Beijing's Hong Kong and Macao Affairs Office, has made such public musings. This is one way China's leaders introduce upcoming policy to the public. Xia is also a vice chairman of one of the two bodies that is about to meet.
The "two sessions" set priorities for China in the year ahead, including the economic plan. While the Chinese premier normally establishes an "estimate" of growth that, through careful massaging of the numbers, is inevitably met, it is unlikely to be a precise number this time around.
The dual sessions were pushed into May last year due to the pandemic. This year, the meeting is occurring in March as normal, but for a shorter amount of time. There will be greater fanfare than normal, with the Chinese Communist Party leading up to the 100th anniversary of its founding in July.
The two bodies of China's congress will both hold sessions, with the Chinese People's Political Consultative Conference (CPPCC) convening on March 4, and the National People's Congress (NPC) convening on March 5.
The NPC is the legislature, while the CPPCC is China's top political-advisory body. Xia, Beijing's top official in Hong Kong, is a vice chairman of the policy-setting National Committee of the CPPCC. So he's VC of the NC of the CPPCC. All these advisory committees and bodies ostensibly "debate" issues that in reality are already decided in backroom deals by the top leadership.
It was highly unusual that there was no economic goal set at last year's meeting. Thanks to a harsh and total lockdown nationwide, the COVID-19 outbreak that first became public knowledge in China in early January had abated by mid-March. There were zero new infections reported on March 14 in Wuhan and surrounding Hubei Province, the first time since the outbreak began. The retail sector was temporarily set back 20.5%, and exports by 15.9%, but China was still the only major economy to post economic growth in 2020.
This is the first year of China's latest Five-Year Plan (the 14th for those who keep count), so there may be a longer-term focus for much of the agenda setting. Chinese President Xi Jinping has already touted a "Dual Circulation Strategy" that emphasizes domestic, home-grown industry and consumer demand as an alternative to export-driven external demand.
We're sure to hear plenty of praise and blue-sky descriptions about how that strategy will succeed. It appears to consist of substituting local alternatives to foreign imports, and encouraging domestic demand. Cutting dependence on energy and food imports will be key, as will increased funding for high-end manufacturing.
China is particularly intent on growing a domestic tech industry. The U.S. sanctions on its leading tech exporter, Huawei Technologies, has since September 2020 robbed the mobile-phone and telecom-hardware maker of its supply of semiconductor chips.
The U.S. rules bar the use of U.S.-made software or hardware in making chips for Chinese consumers, without special permission. That cuts off suppliers such as Taiwan Semiconductor Manufacturing Corp. (TSM) , or TSMC, the largest contract chipmaker in the world. China wants to establish Shanghai-based Semiconductor Manufacturing International Corp., or SMIC, as an alternative, though analysts say the mainland competitor is at least a decade behind its largest rival.
The gap, however, would be sure to narrow with Beijing's coffers backing change. A China Central Television story said China aims to move from 30% self-sufficiency on chips in 2019 to 70% by 2025, an extremely rapid clip. We'll likely hear more detail as to how that will happen in the upcoming meetings.
China has also faced censure and U.S. sanctions on top Chinese and Hong Kong officials over its decimation of civil rights in Hong Kong. The city is a shadow of its freewheeling self, with political dissent outlawed, and all major pro-democracy activists and politicians either behind bars, or awaiting trial.
Most recently, the Hong Kong authorities charged 47 politicians for arranging an informal primary at which they were going to pick candidates to run for Hong Kong's Congress, the Legislative Council. Normal practice in a democracy. Their attempts to get elected into government are now grounds to be charged with one count of "conspiracy to commit subversion," of that same government, because they would have resisted rubber stamping laws.
We had months of protests over Beijing's heavy hand in Hong Kong over the course of 2019. A movement that began in opposition to a law that would have allowed extradition into China to face its kangaroo courts morphed into pro-democracy activism. It was also a violent expression of deep-seated resentment of how Beijing is treating the former British colony, via the puppet Hong Kong government.
The anger over Beijing's tightening iron grip on the city is hardly going to dissipate once Xia's "advice" over "patriots" being in charge is fobbed onto Hong Kong. The Chinese authorities are also intensifying propaganda efforts in school, forcing children to sing the Chinese national anthem and teaching a white-washed, Communist-friendly curriculum. The tuition highlights the great successes of the People's Republic of China, emphasizing economic growth. It skips over British colonial control of Hong Kong, and inconvenient episodes like the 1989 Tiananmen Square massacre, not to mention the Cultural Revolution and Great Leap Forward, when it's estimated 45 million people starved or were worked to death in "re-education" camps.
Beijing believes one of the "root causes" of the 2019 demonstrations was the lack of "patriots governing Hong Kong." The symposium at the start of the week said "prompt measures" must be taken to improve how officials are elected, under the leadership of Beijing.
Meanwhile, "Comprehensive measures must also be taken in terms of stepping up the appraisal and selection of governing personnel, strengthening citizenship education and improving the climate of public opinion," the delegates at the Shenzhen event decided. It shall be done.
Expect more of the same out of the meetings in Beijing. This time last year, the draconian and much-hated National Security Law was proposed at the "two sessions." That's now in effect, a law designed and written in Beijing without the input of any Hong Kongers at all, but forced on the city. It outlaws sedition or collusion with foreign powers -- which as subsequent arrests make clear includes mere contact with foreign politicians -- and applies globally, to all citizens. Including you.
Clearly, in real life, you can love your country but not love the political party that's in charge. The concept of democracy is that you can effect political change. But in the system being forced on Hong Kong, loving the "country" means not just China but the Communist People's Republic of China as well. The party and the nation are as one.
The Communist Party would much prefer that folks in the street worry about business, and leave the governing up to them. They sit atop a grand bureaucracy that encourages massive graft, in the form of what economists call "rent-seeking behavior." If you're the local Communist official who can shut down a factory for not having the right worker-safety or emissions permits, and no one outside the party can remove you from your post, there's great incentive for local businesses to keep greasing the right palms. Then the official greases the palm one level up the chain to stay in that job. And so on.
This is all incredibly inefficient from a business point of view. A Hong Kong Chinese friend of mine who owns a business in mainland China calls it infuriating, but unfortunately necessary. Even though he has Shanghai roots, he tries to spend as little time on the mainland as possible as a result. He leaves the bribery and wining-and-dining of officials to mainland subordinates.
Still, it is not inefficient enough to hold back China's economic juggernaut. GDP grew at 2.3% in 2020, despite centrally located Wuhan, "China's Chicago," serving as Ground Zero for the pandemic. Premier Li Keqiang will likely have no exact number to introduce now, for two reasons: there's still too much economic uncertainty globally to know how China's export demand will fare; and the number will likely look abnormally high given the low base effect. Nomura calculates China's GDP may rise 8.8% in 2021, which is faster than the Communist Party has outlined in past targets.
All 31 of China's provinces have already announced their growth targets for 2021. The only province to go backwards last year was Hubei, which includes Wuhan, where the local economy shrank 5.0% for 2020. It anticipates growth of "above 10%" in 2021. So, too, does Hainan Province that includes "China's Hawaii," the free-trade zone of Hainan Island, with government policy encouraging ongoing growth.
China's largest economic drivers, the provinces along the east coast, have all set targets that are in line with previous national targets, either selecting "above 6%" or "above 6.5%." Nationally, China set "6.0% to 6.5%" as the growth target for 2019, and "around 6.5%" in 2017 and 2018. Based on the economic size of the provinces, Nomura calculates the announced targets equate to a weighted average of 6.8% growth in 2021. Once the COVID effect passes, China will surely revert to that 6.0% norm.