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The National People’s Congress (NPC) and the Chinese People's Political Consultative Conference annual joint meeting, the so-called Two Sessions or Lianghui takes place from the 5th to 15th March 2017 2017 in Beijing. We from ECOVIS Beijing would like to give you a short update on what happened during the first weekend.

 

Highly expected was the State of the Nation speech by Chinese Premier Li Keqiang to around 3000 delegates. The speech covers an annual report on the governmental work of last year and sets new political and economic targets.

 

Firstly, Li stated that the government has reached the year’s main tasks for economic and social development:

 

  • slower but stable economic growth with China contributing more than 30 percent of global growth,

  • growth in employment with over 13 million new urban jobs,

  • more openness and the progress made in the One Belt One Road Initiative,

  • consumption as the main force in economic growth,

  • more technological innovations made in China and better-educated workforce,

  • new improvement in living standards.

 

Based on the above-mentioned achievements, Li Keqiang set out the main targets for the coming year:

 

  • a GDP growth of 6.5 percent,

  • inflation (CPI) increase kept at around 3 percent,

  • over 11 million new urban jobs,

  • a steady rise in import and export volumes,

  • an increase of personal income in step with GDP growth (e.g. 6.5%),

  • reduction of at least 3.4% in energy consumption per unit of GDP including an overall reduction of major pollutants.

 

According to Li, an expected GDP growth of 6.5% is realistic and reflects the potential of China’s economy.

 

Additionally, Li Keqiang warned of immense challenges in the international political and economic environment with rising protectionism (please read our article Xi Jinping's speech in Davos for further information) and a growing debt burden caused by the credit-driven economic growth in the past. Furthermore, Li announced to cut excess capacity in steel and coal and to reduce an oversupply in the housing market.

 

The relative small GDP target shall grant the government more leeway in rebalancing the economy and in reducing public debt. The easy giveaway of credits and the raising government spending in 2016 stoked worries about unsustainable debt ratio and an overheated real estate market. For example, the corporate debt shall be subjected to stricter controls and the issuance of new credits and loans shall be limited.

 

Monetary policy will change only slightly. Li pointed out that in 2016, the growth of money supply slowed from 13% to 12%, fixed investment growth dropped from 10.5% to 9%. The monetary policy is expected to be “prudent and neutral”.

 

ECOVIS Beijing observations

 

The report is, as usual, rather optimistic and, just as last year, Li announced further structural reforms. But with the 19th Party Congress looming in autumn this year, small tweaks are more likely than painful and potentially disruptive changes. As Xi noted in December that in 2017 the party favors stability over growth. Li’s target should be therefore taken with a grain of salt, although foreign businesses might expect some relaxation towards foreign expat work permit regulations (please read our Article ECOVIS Beijing Outlook 2017 for more information) and registration procedures.

 

There is still an immense overcapacity in steel and coal, inefficient state-owned enterprises, a high debt burden and environmental issues. But Li Keqiang also announced that in 2016 12.4 Million people could escape poverty. Equally, Chinese growing middle class and the shifting focus from GDP to wages indicates that the Chinese government will not, for the sake of its own survival, tolerate growth at the expense of living conditions anymore, even if it, at least so far, hesitates to squarely attack main offenders. 

 

Richard 1grau  
Richard Hoffmann
 
Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: This email address is being protected from spambots. You need JavaScript enabled to view it.
Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter, give us a call +86 (10) 6561 6609 or contact us directly via This email address is being protected from spambots. You need JavaScript enabled to view it.  
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