As often happens, China is at a significant political turning point: the National People’s Congress, the single House of the Chinese Parliament, made up of approximately 3,000 delegates, has opened.

It has the power to oversee Government’s activities, to legislate and directly appoint some of the most important State’s leaders.

Together with the National Committee of the Chinese People’s Political Consultative Conference of the People, the National People’s Congress is the highest legislative Chinese body.

The Congress is elected every five years and meets every spring for about 12-15 days in a row, usually in the Great Hall of the People in Tiananmen Square.

At the opening of the current Congress on Saturday, March 5, Prime Minister Li Kekiang, also in his capacity as Head of the State Council, reaffirmed that the GDP growth rate set by the government would be 6.5-7%, lower than previously set, but certainly much higher than the GDP growth rate of any Western economy.

According to the data analyzed by Li Kekiang, in the last financial year China’s GDP amounted to 67.7 trillion yuan, with a 6.9% increase as against the previous year.

Agricultural production has also increased for the twelfth time in a row, while consumer prices are growing much more slowly than GDP and agricultural and industrial production.

Last year 13.12 million new jobs were created in urban areas, a figure higher than the previous NPC forecasts.

The service sector accounts for 50.5% of the total GDP, just to dispel the usual, old and taken for granted analysis that sees China growing only in labour-intensive and low technology sectors.

Gone are the days when China was a replacement economy; the country is now a global leader of technological innovation.

Conversely, China will take advantage of the current period of reduced GDP growth – which, however, remains a mirage for us – to invest in high-tech and labour-saving, but high value added, sectors which will compete directly, or better, absorb our high technical and product innovation sectors.

Li Kekiang said that the Internet has now reached all Chinese enterprises, with the number of new businesses which in 2015 grew by 21.6%, equivalent to nearly 12,000 new start-ups a day.

Again according to the Chinese government, the per capita disposable income increased by 7.4% in real terms while, since the end of last year, bank deposits have grown by 8.5% – equivalent, in absolute terms, to four trillion yuan.

For the first time 64.34 million Chinese people living in rural areas have had access to pure and drinking water – a transformation which will lead – in China as in Europe in the past – to the most significant and stable increase of average life expectancy.

Chinese people living below the poverty line have decreased by 14.42 millions. It is a sign that the current transformation of the Chinese economy is not only heading for the expansion of the internal market, but also for fewer social inequalities.

It was the theme of the recent speeches “within” the Party made by Secretary Xi Jinping, that relates the fight against corruption to greater social equality – a theme that has focused again attention on the specific type of Chinese economic development.

It is no longer a simple phase of capitalist accumulation, as described by classic political economy theories (and by Marx), but a socialist system where growth adds to the fight against poverty and the increase in wages and consumption.

China has never been, not even in the early days of the “Four Modernizations”, a socialist economy that adapted itself to an export-led development.

This is the economic and ethical-moral importance of the fight against corruption, which has characterized Xi Jinping’s leadership and direction from the very beginning.

As announced by Xi Jinping in mid-January, the anti-corruption campaign will hit not only the higher ranks of the regime, but also the most modest and peripheral sectors and functions.

Clearly Xi Jinping wants to use the fight against corruption to eliminate its old enemies, those who blocked his rise to the CPC Secretariat for at least two years – but there is more in the new ethics of the Party and its ruling class.

For Xi, the issue lies in using two criteria: the abolition of the informality of procedures, but rather the strengthening of their strict formal legality, and also the restoration of all the ancient cultural and ethical values of tradition and ancient culture within the Chinese society.

It is socialism which favours Confucius, not the other way round.

Hence a new Cultural Revolution to avoid China’s mere adhesion to the mindset, consumption and business style of “Western dogs”, as Europeans were called during the “Boxer rebellion”.

Over a thousand “economic fugitives”, guilty of very severe crimes of corruption and illegal enrichment, coming from the United States, Canada, Australia and New Zealand, have already been brought to Chinese justice.

The “tigers”, namely the corrupt people – just to use the terminology of the Chinese press – have been exposed in the Central Military Commission, in the intelligence services, in the People’s Liberation Army and in many State and Party’s ruling bodies.

For Wang Qishan, the Head of the Central Commission for Discipline Inspection, the main anti-corruption body in the country, during 2016 three types of officials will be scrutinized: those who have continued their corrupt practices after the results of the 18th CPC Congress, in 2012, when Xi rose to power; those who have “serious problems” and have generated a “fierce people’s reaction”, and finally all those who occupy key posts and are waiting for promotion.

Reverting to Li Kekiang’s analysis at the National People’s Congress underway, the CPC and especially Xi Jinping’s “line” want: a) to maintain stable growth, perhaps less rapid than in previous years, thus avoiding risks in the global financial market while making the necessary structural adjustments, which are usually expensive and unpopular.

Furthermore, b) a new proactive fiscal policy has been implemented, which has allowed to reduce some taxes, domestic rates and use local budgets productively.

Another factor, c), are the 3.2 billion yuan in new governments’ and local authorities’ bonds, which have been used to pay off previous debts, with a decrease in debt servicing for peripheral governments equal to approximately 200 million yuan.

Funds have also been created for special operations, especially for water management, for the most deprived urban areas, and for rural residential areas, while d) private spending has been targeted to the sectors which are the most promising for the government and the CPC: travels, on-line shopping, information technology equipment.

In short, the Chinese government’s choice has been to put an end to the generic stimulus policies, which have radial effects on the whole economic system, so as to foster structural reforms.

311 types of products have been liberalized; 123 professions and activities no longer need permits authorizations or government concessions; 85% of the authorizations for new economic activities have been abolished, while only one business license with a unified tax code is now used in China.

Administered prices have fallen by 80% and those regulated by local governments by over 50%.

Hence liberalization has the function of balancing the system, not of generating the old Marxist (and Ricardian) “primitive accumulation”.

Restrictions on Chinese investment abroad have fallen by 50%, while over 90% of Chinese projects funded abroad can be implemented only on the basis of investors’ reports, without further constraints.

The aim is clear: to boost China’s export mix to avoid asymmetric shocks.

In 2015 China also used over 126.3 billion US dollars of foreign investment in its business, with a 5.6% increase, while the non-banking and financial Foreign Direct Investment (FDI) operating in China amounted to 118 billion US dollars, with a 14.7% increase.

Moreover the Asian Infrastructure Investment Bank was inaugurated, involving also Italy, and particularly the Silk Road Fund, while the renminbi has recently been included in the currencies of the International Monetary Fund’s “basket” for its “special drawing rights”, the currency issued by the IMF.

Finally, d) the “Made in China 2025 Initiative” has been launched to update the manufacturing productive systems and, above all, to finance and update the small and medium-sized enterprises’ technologies.

In the best Maoist tradition of the “balance between regions”, this corresponds to the development of the Beijing-Tianjin-Hebei integration and to the expansion of the Yangtze’s Economic Belt.

With a view to rebalancing the masses’ purchasing power and stabilizing society, 7.2 million housing units subsidized by the central government have been built, with a new initiative to build schools in rural areas and make compulsory education universal.

In the current NPC, reference has also been made to rural areas to spread a new political formula, namely the “Three Stricts, Three Honests” internal education campaign, initiated by Xi Jinping in December 2014, which is meant to strengthen public ethics and “political ecology”.

With this campaign, Xi wanted to hit political careerism and the overlap between political elites and economic and business elites.

It is worth recalling that the “Three Honests” are: “be honest in making decisions”, “be honest in forging a career” and “be honest in personal behaviour”.

The Three Stricts are: “be strict in moral conduct”, “be strict in exercising power”, “be strict in disciplining yourself”.

As we can infer from this brief description, Xi Jinping’s (and Li Kekiang’s) theory and slogans are perfectly suited to the current economic policy, not only with regard to corruption, but also to everything relating to the expansion and stabilization of economic development in a context of democratization of income and support for the old and new Chinese poor walks of society.

Hence, for Xi and Li Kekiang, the political and economic project is now clear: to preserve a high rate of economic development, despite the external conditions and asymmetric shocks coming from countries in crisis (and from the United States), and then to perfect the structural adjustments, which have a clear significance.

Their significance is the urbanization of China’s people, 50% of whom lives in cities; the reduction of private energy consumption, which fell by 18.2%, with a pollution rate which decreased by 12%; the growth of transport infrastructure, with 121,000 km of railway lines, 19,000 of which are high-speed; finally, the promotion of scientific and technological innovation.

This is the reason why the economy of the service sector, adequately backed by the Chinese government, will anyway support growth, while the structural undervaluation of renmbimbi, the axis of the financial protection of Chinese assets, will continue to play its role as a de facto subsidy to Chinese exports.

The Chinese economy learns from its mistakes very quickly, also thanks to its centralization, and the share of GDP generated by services will optimally support the Chinese expansion in an international market where the share of manufacturing and old technologies is shrinking.

Giancarlo Elia Valori
Giancarlo Elia Valori

Giancarlo Elia Valori * (twitter-logo@GEliaValori)

* Presidente della merchant bank “La centrale Finanziaria Generale S.p.A.”
– Presidente della “Cattedra sugli studi della pace, la sicurezza e lo sviluppo internazionale presso la Facoltà di relazioni internazionali della Peking University, nonché “professore straordinario” di economia e politica internazionale nello stesso Ateneo
– Honorable dell’Académie des Sciences dell’Institut de France