[co-author: Hannah Smyth]

SUMMARY

The National People’s Congress, as an important part of China “Two Sessions”, started its annual meeting on 5 March 2023, in which Premier Li Keqiang delivered the government work report for 2023 (“GWR”) to policymakers, setting the tone for the Chinese economy in the coming year. The GWR touched on every important aspect of economy and trade, i.e., foreign investment, funding boost and tech innovation. As a brief guide to enable foreign investors to better understand where the Chinese economy is heading, after three challenging years as a result of the COVID-19 pandemic, we have set out below key takeaways from the policy measures outlined in the GWR.

Target GDP Growth around 5%, and Simulate Employment and Domestic Consumption

The GWR indicated that China aims to boost its gross domestic product by around 5% this year, with intensified and more targeted macroeconomic policies to stabilise economic growth. China will target an increase in domestic consumption and restoration in business confidence, including tourism, catering and retail services, to enjoy a rebound and aims to achieve a 3% rise in its consumer price index. The report also provided that approximately 12 million new urban jobs would be created for 2023, being one of the top priorities to shake-off the stringent three years COVID-19

policy.

Considering China’s strong economic recovery in the past two months, the aforementioned modest GDP goal is a clear step towards striving for economic stability and high-quality, sustained growth.

Strengthen the Policies to Attract Foreign Investment

As stipulated in the report, China will continue to intensity efforts to attract foreign investment and facilitate the launch of landmark foreign-funded projects. Great levels of support have been given to attract foreign investment in the past 5 years, such as (i) the enactment of the Foreign Investment Law, (ii) items on “negative lists” were further reduced across the country and (iii) pilot free trade zones, of which 21 have been established, including the new Hainan Free Trade Port. Li Keqiang stressed that China will increase market access and “national treatment” for foreign investors.

Specifically, as strategies to boost digital trade and high-quality investments come to fruition, China will join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which is a high-end trade and investment pact, aligned in efforts to counter challenges posed by external competitors of international trade and the usage of foreign capital.

Several measures referred to in the follow-up government budget report during “Two Sessions” also mirror this overarching sentiment of attracting foreign investment:

• China is set to play a greater role in the Regional Comprehensive Economic Partnership Agreement, the world's largest free trade pact, and set an example for other signatories;
• The Government will propose favourable policies on tariffs, import-related taxes and tax refunds; and
• China will expand its importing advanced-technologies, important facilities and energy resources.

Emphasise the Importance of Technology and ESG

The GWR emphasised the importance of technology and ESG as necessities to long-term growth. The two sectors tend to attract more capital for investment from government support measures, as well as from the private market players.

1) Build Self-Reliance in Science and Technology

Li Keqiang called for a bigger role for the Chinese government to push key technological breakthroughs, while leaving the enterprises as the main drivers for innovation. Specifically, the following additional actions will be taken to implement the GWR blueprint:

• According to a reform plan submitted to National People’s Congress for deliberation following the GWR, China plans to restructure its Ministry of Science and Technology. The aim is to better allocate resources so as to improve a new system for mobilizing the nation to make technological breakthroughs;
• China will continue to expand its 5G network while further promoting the research and development of 6G as well as other cutting-edge technology. This includes humanoid robots, metaverse, quantum technology and more, so as to better support the implementation of a modern industrial system; and
• Leaders of domestic tech companies have proposed that China accelerate the construction of artificial intelligence (“AI”) models, in order to reap the rewards of, and enjoy, the AI boom.

2) Focus on ESG

As highlighted in the GWR, green and low-carbon development will be a key focus:

• China should intensify pollution prevention and control, and move faster to develop a new energy system, improve policies for green development, and advance energy conservation and carbon reduction in key areas;
• As tensions within international politics rise, so does the attention on energy security. China needs to work on developing relevant technologies that will promote clean and efficient use to ensure energy security and achieve developments in green energy. Emerging forms of green generation have not yet been able to cover the rebound growth in demand post-COVID; and
• China will continue to enhance market coverage of electric vehicles as part of its stimulus package to boost new energy in the motor and vehicular industry, in addition to promoting the wider use of battery swap technology. Suggestions from automotive industries echoed this sentiment, urging the government to roll out supportive policies to reduce the construction cost of battery swap facilities and push for a standard battery design among different manufacturers.

Reinforce the Supportive Policies for the Guangdong-Hong Kong-Macau Greater Bay Area

Regarded as the southern economic powerhouse of the nation, Greater Bay Area has been further developed to support Hong Kong’s economy and businesses in recent years. The GWR addressed the fact the central government will guarantee that high levels of autonomy continue to be enjoyed by Hong Kong and Macau, and the government will continue to support the two regions’ development and stability.

Key supportive policy areas outlined in the GWR, it is clear the Greater Bay Area will be afforded valuable opportunities in future developments:

• By tapping into the booming domestic demand, giving priority to the recovery and expansion of consumption and promoting the recovery of life-services consumption, the Greater Bay Area will enjoy a great share of the mainland consumer market for its high-end products and services;
• After travel with mainland China is restored Hong Kong will play a bigger role as the super–connector, increasing efforts to attract foreign capital by expanding market access and better serving foreign entities; and
• As the GWR proposes, with the accelerated construction of a modern industrial system which focuses on advancement of core technological research, Hong Kong is now committed to transforming its industrial structure. The emerging innovative technology industries in Hong Kong’s economy will be able to benefit from the mainland’s existing modern industrial system, principally by the integration of Hong Kong into the Greater Bay Area and building close connections with Shenzhen’s sci-tech zone. The intention is to drive Hong Kong’s traditional economy transition.

Conclusion

There is much we can deduce from the GWR. China has delivered the message that it is open for foreign capital and has set full economic recovery as this year’s top priority. Instead of setting an ambitious GDP growth target, China aims to gain and maintain sustainable, high-quality growth. In calling for an advanced and attractive environment for foreign investors, it is likely that the government will take a pro-business stance to reduce restrictions on market entry and promote policies to attract foreign investment. The market attitudes towards the appointment of Li Qiang as Premier, the successor to Li Keqiang, are also optimistic as Li Qiang is typically seen as an advocate for foreign business and investment. Therefore, business leaders and foreign investors are advised to be aware of any major legislative changes that may emerge in the coming weeks.

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