Preview: China’s Peoples’ Congress Convenes As US Pressure Mounts
The Trump administration has been targeting this label with tariffs.

- Growth targets could be delayed

- US attack on Huawei increases friction

- Meeting commences Friday

 

By Eric Culp

European Editor, LiveSquawk News

@EricCulpLS

 

With the world’s two largest commercial powers at loggerheads in the throes of the worst economic downturn since World War Two, this year’s Chinese National People’s Congress could boost hopes about global growth after lockdown or dash them.

 

In what is seen by many as political theatre, the meeting, which begins Friday and generally extends for 10 days, allows the Chinese leadership and officials from around the country to gather in Beijing. The congress is considered a formality for enacting Communist Party policy growth targets, economic plans, and a range of other policy measures formulated well before the 3,000 delegates even sign-in.

 

But this year, the foreign-policy hurricane swirling around the meeting during the last few sessions has grown: There is little doubt that China’s Wuhan Province served as the germination point for the Covid-19 outbreak, which resulted in a 6.8pct contraction in Chinese GDP in the first quarter versus the year-earlier period, the worst decline on record.

 

The lockdown to stem the spread of the virus also forced the first postponement of the March congress since 1995, and questions remain about Beijing’s handling of the outbreak.

 

US President Donald Trump has said repeatedly that China withheld information about the virus, and recriminations by at least one Chinese official puts the blame for the disease on the US. Other countries are also demanding more information from Beijing about what data it may have failed to pass on in the early days of the outbreak.

 

US Senator Lindsey Graham even floated the idea that Washington could default on its $1trln debt held by China as compensation for the economic damage America has suffered. His colleagues in the US upper house passed a bill Wednesday that would delist Chinese companies from U.S. stock exchanges unless they allow the Securities and Exchange Commission to inspect the firms’ audits.

 

 

 

US companies must now seek permission to supply Huawei.

Targeting Huawei

 

The US and China remain locked in their ongoing trade conflict, and Washington escalated its attacks late last week when the US Commerce Department said any American company wishing to supply technology to China’s Huawei would need a license; analysts were quick to point out that such permission was unlikely. The move followed the decision by the US—along with Japan, Australia, and Taiwan—to ban the Chinese tech giant from installing any of its 5G mobile units in the country due to security concerns.

 

And earlier this week, the US and China underlined their disparate paths during a two-day videoconference meeting of health ministers and officials from the World Health Organization. Chinese President Xi Jinping logged in and promised up to $2bln over two years. Trump didn’t attend but threatened to cut off funding for the WHO.

 

US-Sino relations are carrying unprecedented baggage ahead of this year’s People’s Congress, and the forum could serve as an opportunity to attack the Trump administration and the US economy in word and deed. Xi will close the conference with an address to the delegates.

 

Following the announcement of the latest Huawei sanctions, the American Sinologist James McGregor warned, “This week could get ugly.”

 

In an interview with CNBC, McGregor, the chairman of APCO Worldwide, said China may feel like it has been backed into a corner. “In business they are feeling very vulnerable.”

 

The US attack on Huawei is “a real shot across the bow,” he noted. “The Chinese will respond.”

 

What to look for

 

Danske Bank said investors should expect the following from the meeting:

 

Growth target and stimulus. A target could very well be left out this year, but some guidance might be given still. Employment is a key focus point and the target for the fiscal budget will be announced and will reveal a further easing of policy.

 

Technology and innovation. This is a key part of China’s development strategy and it has only become more important with the US confrontation.

 

Deepening reforms. More sectors will likely be opened up for private participation. China Daily reported in late April of a new guideline saying, “the country will comprehensively deepen reforms of its economic system of property rights and pursuing market-oriented allocation of production factors”. It also said that “The guideline stresses the reform principle of minimizing direct intervention from the government in resource allocation and microeconomic activities.”

 

US relations. While the US may not be mentioned specifically, the report will at least indirectly refer to the big challenges China is facing in its relationship with the US.

 

Central bank outlook

 

“Monetary policy is usually described in vague terms,” Capital Economics said. “The monetary stance was ‘prudent’ from 2011 to 2016 and has been ‘prudent and neutral’ since 2017, despite multiple tightening and loosening cycles along the way. But the government may indirectly acknowledge a shift towards re-leveraging. In previous years, targets for growth in aggregate financing (AFRE) were set in line with nominal GDP growth. But media reports suggest that officials will continue to target double-digit credit growth this year, against the backdrop of a slump in output.”

 

The People’s Bank Of China left its benchmark lending rate unchanged on earlier this week.