- May 18, 2020 Economy
NPC Watch: Three Notables
China’s annual two sessions, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference, will start on May 22. Needless to say, this year’s delayed session is taking place in unusual circumstances and will likely be more muted than the pomp and pageantry that typically accompany the political confab.
Still, the NPC meeting will feature the “state of the union” report from Premier Li Keqiang, which will invariably focus on the post-pandemic recovery. New initiatives and economic targets will be announced, though many of the details will not be forthcoming for a while and will be covered in future analyses.
Ahead of this NPC session, however, three issues are worth noting: unemployment target, budget allocation, and longer term initiatives.
From Growth Target to Unemployment Target
The economic growth target has commanded the most attention in previous years, but Beijing will likely emphasize the unemployment target this year, as it was added as a key target only in 2018. Targeting employment rather than growth is a significant change, one that has been accelerated by the economic devastation from Covid-19.
Since the pandemic has had the biggest impact on the labor-intensive services sector, unemployment has been more severe than what is reflected in the decline of headline GDP. This means Beijing will want to concentrate its resources on addressing unemployment rather than bolstering GDP. Even if an annual GDP target is announced—perhaps in the 2-3% range—the unemployment target will be the more politically binding one. This signals to local officials that the focus will be on maintaining jobs and sustaining livelihoods rather than pouring capital toward shovel-ready projects.
I expect Beijing to officially stick to the same 5.5% unemployment target as in 2019. That target only captures urban unemployment, which can be more socially destabilizing especially considering the 9 million college graduates that are expected to enter the job market this year. Thus, with the worsening unemployment situation, setting the target at the same level as last year means that it will be much more difficult to achieve.
Although Beijing’s priority will be official urban unemployment, there is also the unofficial migrant unemployment that is not captured in the target. At the end of April, around 10% of migrant workers, or more than 17 million, failed to find an urban job. The size of this problem cannot be ignored and will require more actions to respond.
During the NPC, Beijing is likely to both extend current job preserving measures and introduce new ones. Immediately after the Covid-19 outbreak, Beijing announced a series of measures to prevent mass layoffs, such as employer social security contribution cuts. Those were supposed to be phased out by the end of June, but it now appears necessary to extend them through the end of the year. Some of the new measures will likely include incentives to encourage firms to keep employees on their payroll.
The fiscal deficit this year will certainly be larger than usual, but the central budget’s allocation will determine the trade-off between growth and jobs. Although the two are generally strongly correlated, certain fiscal stimulus can lead to jobless growth because the money will mainly be spent on physical assets, not paychecks. For example, even in public works projects specifically designed to create jobs, only 15% of the expenditure goes to labor compensation.
Given the immense scale of the unemployment challenge, the budget allocation will favor job relief spending in order to meet the unemployment target. The spending on jobs programs and other livelihood protections, in accordance with the “six ensures,” will mean less of a fiscal boost for investment. This means that spending on saving jobs will come at the expense of near-term growth.
In addition to measures that directly affect this year’s growth and employment prospects, the NPC will also preview Beijing’s longer term planning, which will likely be featured in the 14th Five-Year Plan due later this year.
For example, Beijing will likely unveil more details on its new digital infrastructure plan, such as the scope and scale of investment. Moreover, given the intensification of US-China technology confrontation, indigenous innovation and supply chain integrity will also be near the top of the NPC agenda. These issues will be covered in future research.
In sum, job relief, rather than stimulus, will likely be the key theme coming out of the NPC, while Beijing’s longer term plans are expected to further crystallize.
Houze Song is a research fellow at MacroPolo. You can find his work on the economy, local finance, and other topics here.
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