China to hold ‘Two Sessions’ meeting amid bazooka-like stimulus debate

BEIJING — China is set this week to kick off its annual parliamentary meetings, which investors are watching closely for signals on economic stimulus.

The country’s gross domestic product grew by 5.2% in 2023, but overall recovery from the Covid-19 pandemic was slower than many had expected. A prolonged slump in the massive real estate market and falling global demand for Chinese exports have contributed to low levels of consumer and business sentiment.

That’s all led to questions over whether Beijing will step in with large-scale support. So far, authorities have been relatively reserved.

Beijing signaled in December that any new policy support would be “appropriate,” said Wang Jun, chief economist at Huatai Asset Management, adding “there’s no way” that stimulus would be as large as it was in 2008. That’s according to a CNBC translation of his Mandarin-language remarks.

China’s economic policy is typically set at an annual meeting in December by leaders within the ruling Communist Party of China.

The meetings this month, known as the “Two Sessions,” are at the government, instead of party, level and typically release more details on policy plans, such as the GDP target for the year.

Wang said he is watching for comments on authorities’ plans for the real estate sector, capital markets and local government finances.

Back in 2008, when the world was reeling from the financial crisis, China unleashed a massive stimulus package to sustain growth with greater demand. While the economy rebounded, the measures drew criticism for a resulting surge in local government debt.

Beijing in recent years has emphasized the need to stem financial risks and clamped down on real estate developers’ high reliance on debt for growth, an issue tied to local government finances. This time around, China’s monetary policy also faces constraints on how far it can deviate from the U.S. Federal Reserve’s interest rate path.

The Chinese People’s Political Consultative Conference, an advisory body, is set to kick off its annual meeting on Monday.

The following day the National People’s Congress legislature is due to begin its meeting. Tuesday is also when the country’s premier is expected to share the year’s targets for GDP, employment and other economic indicators in what’s called the “Government Work Report.”

“The target will likely remain relatively high,” said Bank of China’s chief researcher Zong Liang, noting GDP grew by 5.2% last year. That’s according to a CNBC translation of his Mandarin-language remarks.

He expects the target for the fiscal deficit will be around 3.5% and that monetary policy will also be relatively loose.

China in October made a rare announcement that it was raising the fiscal deficit to 3.8%, from 3%.

During the parliamentary meetings, Chinese officials will likely also discuss plans to bolster tech and innovation, in line with a recent high-level call to bolster “new productive forces.”

China’s foreign minister and premier typically hold press conferences during the parliamentary meetings, which generally end in mid-March. No dates have yet been announced.

Bank of China’s Zong expects that policymakers will send signals on opening up borders or other business opportunities to foreigners, as well as improving the environment for non-state-owned enterprises.

However, specific implementation details are typically left to individual ministries to announce, following high-level directives from Beijing.

Any direct support for consumption is unlikely, but broader moves to improve the social safety net would be of note.

“On the demand side, the delayed Third Plenum [of the Chinese Communist Party’s Central Committee] (originally set for December) suggests that longer term demand policies – including on fiscal, tax, and pensions reforms – may still be in initial stages of discussion, but could still warrant a mention here,” Loo said.

This year’s Two Sessions follow regular leadership reshuffles that have strengthened the ruling Communist Party of China’s control of the government.

At the parliamentary meeting last year, Beijing announced an overhaul of finance and tech regulation by establishing party-led commissions to oversee the two sectors. Chinese President Xi Jinping, who is also the party’s general secretary, gained an unprecedented third term as president.