China’s Two Sessions Begin Amid Economic Concerns

As President Xi Jinping inaugurated the opening of the Chinese Peoples Political Consultative Conference (CPPCC) in Beijing, China embarked on its pivotal 'Two Sessions' legislative meetings. The Two Sessions is an annual, week-long key legislative event where leaders and lawmakers from across the nation convene to establish the government's agenda focused on China's economic and social development for the ensuing year. The commencement of these sessions arrives on the heels of disconcerting data from the manufacturing sector.

Sequential months of continued contraction in China's manufacturing activity are setting a somber tone for the start of the Year of the Dragon. The official manufacturing purchasing managers’ index (PMI) declined slightly to 49.1 in February, marking the fifth consecutive month below the growth threshold and signaling contraction. Despite this trend, which has persisted for the majority of the past year, the annual Two Sessions hopes to instill a renewed growth strategy for the nation.

The anticipation builds as the sessions are expected to reveal the economic growth target for the year. While most experts anticipate it mirroring last year's 5 percent figure, achieving this without the previous year's low base effect, courtesy of the post-Covid recovery, may pose a challenge.

Notwithstanding, the significance of the PMI figures may not be as dire as they appear. Much of China's manufacturing downtime in February can be attributed to the eight-day Lunar New Year holiday, a period when many factories cease operations. Moreover, the non-manufacturing PMI, encompassing services and construction, exhibited improvement, reaching a five-month high of 51.4 from 50.7 in January.

The Chinese economy nevertheless faces hurdles, including a protracted downturn in the real estate sector—a former growth catalyst—and related issues of debt, deflation and waning consumer confidence. The current legislative sessions could bring news of further stimulus measures, although there's little indication of a large-scale intervention akin to those implemented during the 2008 and 2015 financial tumults.

China's focus is increasingly on fortifying and modernizing its industrial base, emphasizing advancements in fields like semiconductors, big data, and artificial intelligence. Notably, China has taken the lead in manufacturing eco-friendly technologies such as electric vehicles and solar panels. However, domestic consumer reluctance to spend is redirecting these products to foreign markets, risking increasing tensions with economic giants such as the United States and the European Union.

China, Economy, Manufacturing