Three Key Takeaways from the 2024 Two Sessions

China’s emblematic Two Sessions or Lianghui – a term that refers to the concurrent annual plenary sessions of the National People’s Congress (NPC) and the country’s top political advisory body, the Chinese People's Political Consultative Conference (CPPCC) – concluded this week. While much has been said and will continue being said about the implications for China’s economic and policy direction in 2024 and beyond – including a soon-to-be-released China Center report on this – I wanted to share with you the three key takeaways that stood out the most to me.

Key takeaway #1: China’s targets for 2024 do not seem to be consistent with each other. The calculation of the growth rate this year will not only not benefit from a low base; but will in fact be affected by what could be considered a high base – i.e., 5.2 percent growth of 2023. This means that achieving the official GDP growth target of “around 5 percent” in 2024 will depend on robust economic activity on the demand- and supply-sides of the economy. This is indeed what would be required for CPI inflation to reach this year’s target of “around 3 percent,” up from the 0.2 percent recorded in 2023. However, without a significant improvement in income levels and the job market, and so long as the property sector continues in a downturn, it is difficult to foresee a turnaround in confidence weakness. Domestic demand is therefore likely to remain on the softer side.

China could then implement a broader stimulus plan this year. However, in line with the decisions reached at the 2023 Central Economic Work Conference (see our analysis here), it seems that stimulus will be kept moderate and targeted. The budget deficit target of 3 percent of GDP for 2024 is the same as last year’s budget. RMB 3.9 trillion have been earmarked in special purpose bonds for local governments, but this is only RMB 100 billion higher than last year; while there will also be RMB 1 trillion in special treasury bonds, which is the same amount as last year. Now, to be fair, the budget deficit target for 2024 could be raised. This happened last year, when the target was raised to 3.8 percent in October. But this begs the question: how much stimulus is the government prepared to release to achieve its GDP growth target this year? More importantly, is this a must-achieve target, or could 4.7-4.9 percent fall in the range of “around”?

Be that as it may, the stimulus that is currently being considered does not seem to be consistent with the 2024 growth target of “around 5 percent”. Such a target might reflect authorities’ caution about not hurting confidence levels. Indeed, numbers matter. This is why the official consumer confidence index and youth unemployment figures were not reported for several months.

Key takeaway #2: While national security and economic development are being treated as interdependent, the goals in the former will inform the policy choices in the latter. This explains to emphasis that this year’s Report on the Work of the Government put on the development of so-called “new productive forces,” a new term that refers to the technologies necessary for China’s innovation-led growth and industrial upgrading. To be clear, this goal is not wrong. China needs to increase its economic productivity if it is to transition to a high value-added economy and address the challenge of its declining population. Strengthening its technological capabilities can make an important contribution to this. But it is only part of the equation.

Given the current challenges that the Chinese economy is facing, it seems more urgent to address the deep-rooted structural imbalances that are preventing its transition to a more sustainable, consumption-led growth model. It is precisely these imbalances that underpin the persisting weakness in consumer confidence that we are currently seeing in the market, and which is dragging down spending levels. Reforms to improve the social safety net, the pension system, the tax system, the labor market, and the quality, affordability and accessibility of public services (e.g. healthcare and education) will be required. The key aim should be to reduce people’s need for precautionary savings.

Now, it is certainly true that these reforms will take time to take effect, and they need to be balanced with short-term stimulus measures aimed at stabilizing growth; including vis-à-vis the property sector, as its ongoing downturn is eroding household wealth levels and hurting confidence. Still, given that the CPC’s Third Plenum – which has traditionally been used to outline economic reforms – was postponed indefinitely, the expectations were that authorities would use the Two Sessions to discuss the reforms that would be pursued to unlock the potential of domestic consumption. But little detail was provided in this respect. Instead, the CPC Central Commission for Financial and Economic Affairs released at trade-in consumption plan to support consumers and businesses replace old products (i.e. cars, home appliances and other durable goods) and equipment with new ones throughout 2027. But it is difficult to see this plan leading to a sustainable increase in household spending. Without addressing confidence weakness, it is difficult to see households replacing goods more than one or two times over the next three years.  

Why then is the government emphasizing the development of ‘new productive forces’ over domestic demand? The answer has to do with national security and national economic security considerations. Indeed, over the past few years, building technological self-reliance, especially in emerging sectors, has risen to the top of China’s policy agenda as a cornerstone of overall national strength; not only being regarded as critical for national security but also for the country’s continued global competitiveness. And this in great part responds to a more challenging geopolitical environment, where China’s dependence on advanced foreign technologies has been shown to be a key vulnerability that can be weaponized by foreign governments. 

Key takeaway #3: The Party and its core know better. As if to dispel any remaining doubts about who is in charge of defining and overseeing the direction of China’s development process, the NPC revised the Organic Law of the State Council – i.e. the country’s cabinet in charge of overseeing central government agencies and ministries – to give more power to the Communist Party of China (CPC) over China’s executive authority. The added language asserts that the State Council must “resolutely uphold” the authority of the CPC Central Committee and its “centralized and unified leadership;” “resolutely implement” its decisions and plans; and follow the guidance of “Xi Jinping Thought.” And while the “core” was not mentioned, it is clear under who leadership has been centralized and unified.

These changes are significant for two main reasons. Firstly, because they codify and formalize the centralization of power around the CPC top leadership, a trend that intensified since the 20th National Party Congress in 2022. Secondly, because they completely do away with the blurry line separating Party and government, instead turning the State Council into an operating arm of the CPC. Though, perhaps, this should not be surprising. At the press conference of last year’s Two Sessions, Premier Li Qiang had already mentioned that the task of his government would be to implement the decisions and plans laid out by the CPC Central Committee and realize the development vision outlined under ‘Xi Jinping Thought.’

As I have argued previously, how fast and the way this centralization of power has happened during the current administration reveals a sense of urgency amongst China’s top leadership to ensure that China can successfully respond to and risk manage rising external and domestic challenges. So, while President Xi Jinping and top CPC officials had already been playing a central role in outlining China’s development priorities through ‘Xi Jinping Thought,’ they now want to play a central role in designing the policies and measures deemed necessary to realize these priorities; and they also want to make sure that the government follows through.