BEIJING – Instead of dramatic new reforms, Chinese leaders are likely to emphasize reining in surging debt and financial risks to keep growth steady at this year's meeting of the ceremonial national legislature.
The ruling Communist Party is trying to build an economy driven by consumer spending instead of trade and investment. But that could be complicated by trade tensions with U.S. President Donald Trump and slowing demand for export industries that support millions of jobs.
The meeting of the 3,000-plus members of the National People's Congress does little lawmaking. Instead, communist leaders use it to showcase themes for the year's government work.
The meeting comes ahead of a party congress late this year that is expected to endorse another five-year term for President Xi Jinping as party leader. That increases pressure to avoid drastic change.
Analysts expect the legislature to focus on important but unglamorous goals such as controlling debt and beefing up regulation of financial markets.
"We believe maintaining steady growth, strengthening financial regulation and containing risks will be the overall policy emphasis," Citigroup economists Li-Gang Liu and Xiaowen Jin said in a report.
GROWTH TARGET: Chinese leaders are expected to announce an annual economic growth target of about 6.5 percent, among the world's strongest though slower than last year's 6.7 percent expansion. The leaders are trying to shift public attention to improvements in incomes, consumer spending and other indicators but the growth target still is closely watched. The leadership has warned the outlook is "L-shaped," meaning once the slowdown bottoms out, growth is unlikely to rebound to past double-digit rates. Last year's growth, the weakest since 1990, was supported by government spending and easy credit. Without a repeat of that this year, "the headwinds of painful structural reforms, tighter monetary policy and weak exports are likely to limit growth," said Diana Choyleva of Edono Economics in a report.
FINANCIAL RISKS: After a decade of credit-fueled growth, regulators are trying to control debt, clear unpaid loans off the books of state banks and reduce risk in financial markets. Total debt owed by Chinese companies and local governments has soared from the equivalent of 150 percent of annual economic output before the 2008 financial crisis to about 260 percent. That has prompted warnings it could drag on growth. Debt is "without a doubt the biggest challenge in the economy today," said IHS economist Brian Jackson. Regulators are hammering out deals for deeply indebted state companies to repay banks but borrowing still is rising. At a meeting Tuesday of the country's top economic planning body, President Xi Jinping said this year's economic work will stick to "seeking progress while maintaining stability," according to the official Xinhua News Agency. China's stock market regulator says this year's priority is to tighten oversight and eliminate risky trading.
ENTREPRENEURS: Reform advocates complain Beijing is moving too slowly on initiatives to open the state-dominated economy to private companies. The Cabinet has promised better foreign access to finance, insurance, telecoms, internet services and other areas but has yet to disclose details. Limits on foreign ownership and other hurdles have tempered enthusiasm for such pledges. Xi's government is promising to give market forces a bigger role and make the economy more productive. But reform advocates complain Beijing is failing to reduce the dominance of state companies that are a drag on the economy and benefit from monopolies, low-cost access to bank loans and other privileges.
TRUMP: A looming threat for Beijing is Trump's campaign promise to raise import duties on Chinese goods to 40 percent, potentially disrupting industries that support millions of jobs. American companies are frustrated with Chinese restrictions on market access and want Washington to be more assertive but worry Trump could disrupt an important trading relationship if he acts recklessly. The American president has proposed a "border adjustment tax" on imports that would make Chinese goods more expensive in hopes of compelling manufacturers to shift production to the United States. Chinese leaders want to reduce reliance on trade but need steady exports to preserve jobs.
OVERCAPACITY: Chinese leaders are shrinking bloated industries including steel and coal in which supply exceeds demand, but Washington and Europe want them to move faster. A supply glut has led to a flood of low-cost Chinese exports that are hurting foreign competitors and threatening jobs abroad. The government said last year it had eliminated 90 million tons of steel production capacity — 2015 production was 800 million tons, or half the world total — and planned to shut down another 150 million tons. Authorities said last year they planned to eliminate some 1.8 million jobs in steel and coal. This week, the labor minister said another 500,000 jobs in steel and coal would be cut this year but did not say if the reductions would include other industries like cement and glass. Foreign aluminum suppliers want Beijing to shrink that industry as well. Those reductions come at a cost: Beijing announced a 100 billion yuan ($15 billion) fund in February 2016 to cushion the hardships for laid-off workers and help them find new jobs.