Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This week, thousands of Chinese lawmakers are gathering in Beijing
Speaker 2: for the annual meeting of the NPC, the National People's Congress.
Speaker 1: The National People's Congress is China's parliament. It reads drafts
Speaker 1: and passes laws.
Speaker 2: John lu Is, Bloomberg's senior executive editor for Greater China
Speaker 2: based in Beijing.
Speaker 1: The number one thing that happens at the Congresses on
Speaker 1: the first day, China's premiere gives what is equivalent to
Speaker 1: the State of the Nation Address for China. He comes
Speaker 1: out and says how the country is doing, how it
Speaker 1: did in the past year, and then he lays out
Speaker 1: some very important targets for the coming year.
Speaker 2: I want to report to you on the work of
Speaker 2: the government for your deliberation and also for comments. For
Speaker 2: twenty twenty five, Beijing set an ambitious GDP growth target
Speaker 2: of about five percent, and Premier Lie Cheung declared that
Speaker 2: vigorously boosting consumption is the government's top priority. To help
Speaker 2: ramp up domestic demand, Beijing plans to expand its public
Speaker 2: spending by borrowing at a record level. The government raised
Speaker 2: the general budget deficit to around four percent of GDP,
Speaker 2: the highest level in more than three decades. But it's
Speaker 2: unclear whether that kind of stimulus will be enough to
Speaker 2: help the Chinese economy, whether the storm ahead, and then
Speaker 2: of course there's the wild card.
Speaker 1: China's economy is in this really awkward position at the moment.
Speaker 1: Property is struggling, domestic consumption is weak. The only good
Speaker 1: thing about the economy has been exports, and now that's
Speaker 1: in real danger because of Donald Trump and because of
Speaker 1: the tariffs of the United States is imposing. So going
Speaker 1: into the future, the question is what can China do
Speaker 1: to overcome all these challenges, And the problem is there
Speaker 1: isn't a solid, guaranteed solution.
Speaker 2: Welcome to The Big Take Asia from Bloomberg News. I'm wanh.
Speaker 2: Every week we take you inside some of the world's
Speaker 2: biggest and most powerful economies and the markets, tycoons and
Speaker 2: businesses that drive this ever shifting region. Today on the show,
Speaker 2: Beijing plans to get people to spend, spend, and spend,
Speaker 2: but how and will Trump's trade war get in the
Speaker 2: way of those efforts. On Wednesday, Premier Lee Chiang kicked
Speaker 2: off the National People's Congress with China's twenty twenty five
Speaker 2: Government work report. It reviewed the health of China's economy
Speaker 2: and laid out a policy roadmap for the coming year.
Speaker 2: Bloomberg's John Liu and his team have been closely reporting
Speaker 2: on what's coming out of the meetings this week, John,
Speaker 2: what's the biggest thing you were watching out for in
Speaker 2: the government report this year?
Speaker 1: So the three things we were really keen on finding
Speaker 1: out were one, what was the GDP tar you're going
Speaker 1: to be for twenty twenty five? The target of about
Speaker 1: five percent, which is the same as it was for
Speaker 1: twenty twenty four.
Speaker 2: Now, keeping the country's growth rate level might not sound
Speaker 2: like a big deal to an outsider, but the Chinese
Speaker 2: economy is facing serious headwinds right now. John says. Just
Speaker 2: how serious those headwinds are and how difficult it will
Speaker 2: be to reach that goal was reflected in another number
Speaker 2: that was released this week, the borrowing threshold.
Speaker 1: They were going to expand the budget deficit for the
Speaker 1: central government to about four percent of GDP. That's the
Speaker 1: biggest that it's been since nineteen ninety four, since they
Speaker 1: had some major changes in how they calculate fiscal deficits,
Speaker 1: and so it's really the biggest on record. What that says, though,
Speaker 1: is they're going to spend a lot more money to
Speaker 1: have the same growth they had in twenty twenty four,
Speaker 1: So they're spending a lot more money to basically stay
Speaker 1: in place. So that's actually not a very optimistic signal
Speaker 1: for the rest of the year.
Speaker 2: Consumption. People buying dishwashers are going out to restaurants made
Speaker 2: up less than forty five percent of China's GDP growth
Speaker 2: last year. That's the lowest since two thousand and six
Speaker 2: and excludes the pandemic year of twenty twenty. In most
Speaker 2: developed economies, that number would be typically between sixty percent
Speaker 2: to eighty percent. Basically, people in China are feeling kind
Speaker 2: of broke right now, so they're not spending as much
Speaker 2: as fast and this creates a vicious and dangerous cycle.
Speaker 1: People are just not willing to spend, and that has
Speaker 1: resulted in companies need to compete more aggressively to get business,
Speaker 1: and mostly they've been doing that by cutting prices. And
Speaker 1: so if companies are cutting prices, they have less money
Speaker 1: that they're bringing in that they can then give to
Speaker 1: their workers that they can use to hire more workers,
Speaker 1: and that results in households feeling even more uncertain about
Speaker 1: the future, and it motivates people to save even more
Speaker 1: to spend even less. It's a very vicious and very
Speaker 1: dangerous cycle.
Speaker 2: To achieve the five percent growth target, the Chinese government
Speaker 2: has a laundry list of issues to overcome. Some are
Speaker 2: long term, like the country's aging population, which is putting
Speaker 2: pressure on an already strained pension system, but others are
Speaker 2: more pressing, like the property market. The real estate market
Speaker 2: used to be one of the country's biggest growth drivers,
Speaker 2: but it's been in a slump for the last several
Speaker 2: years and it remains deep in trouble today. John It
Speaker 2: sounds like the real estate crisis has affected almost every
Speaker 2: region of China and certainly every level of society. How
Speaker 2: are local governments then dealing with that?
Speaker 1: Many local governments around China are very indebted. They've borrowed
Speaker 1: a lot of money to build the infrastructure over the
Speaker 1: last decade or so, and now as economic growth slows,
Speaker 1: they're finding it harder to generate tax revenue from those
Speaker 1: infrastructure projects to pay them off, and so as a result,
Speaker 1: there's less money to go around. They have to pay
Speaker 1: the interest on those borrowings. That means they have less
Speaker 1: for new projects, they have less potentially to pay government
Speaker 1: workers to provide public services, and so the central government.
Speaker 1: The plan has been for the central government to borrow
Speaker 1: and then to give that money over to the local
Speaker 1: government to pay off the debt. And so basically you're
Speaker 1: transferring the debt load from the local level to the
Speaker 1: central level and.
Speaker 2: Also on the government's list of priorities turning around a
Speaker 2: sluggish job market.
Speaker 1: So the job market, I think the pain point that
Speaker 1: has been most pronounces with youth unemployment. There was even
Speaker 1: a period when they stopped publishing the data for youth
Speaker 1: unemployment because it was so high. In the summer of
Speaker 1: this year, we are going to get a record number
Speaker 1: of new graduates hitting the employment market, and so that's
Speaker 1: going to add additional pressure on the government to create jobs.
Speaker 1: How they go about doing that, I think it looks
Speaker 1: like right now they are putting an emphasis on private enterprise,
Speaker 1: and if you look at the data, the vast majority
Speaker 1: of jobs, especially in Chinese cities, comes from the private sector,
Speaker 1: and so it looks like that the government's main push
Speaker 1: there is to try and reduce regulation, to try and
Speaker 1: reduce the amount of scrutiny on private enterprises and hopefully
Speaker 1: that translates into to a more robust sector and more jobs.
Speaker 2: I mean, the private sector does seem to be something
Speaker 2: of a point of light for China's economy. We've certainly
Speaker 2: seen some big gains made in the last year, right
Speaker 2: particularly in tech. You've got deep seek on the AI front,
Speaker 2: You've got tech giant Huawei surprising people with their phones,
Speaker 2: and that seems to bode well for domestic consumption, which
Speaker 2: is a big target for the Chinese government.
Speaker 1: Right So, I think if China, as it has proclaimed
Speaker 1: at the NPC that it wants to make boosting domestic
Speaker 1: demand the number one priority, if it can do that,
Speaker 1: that would actually be very helpful for domestic innovation, I think,
Speaker 1: because what you would see is companies here in China
Speaker 1: being able to potentially raise prices, having more customers, and
Speaker 1: that would in turn results in greater profitability, which means
Speaker 1: they have more to invest in R and T.
Speaker 2: Now, John, is there anything that's going well in China's economy.
Speaker 1: I think that the stability in the housing market that
Speaker 1: we've seen in the last couple of months is very encouraged.
Speaker 1: I think that the AI innovations, the breakthroughs that we've
Speaker 1: had with deep seek, even with Tenson and Ali Baba
Speaker 1: introducing their own large language models, that's helped produced a
Speaker 1: lot of confidence. I think when the stock market goes
Speaker 1: up as it has because of those innovations, that leads
Speaker 1: people to feel more confident about the future, and maybe
Speaker 1: they think, you know what, I'll go and have a
Speaker 1: nice dinner out, I'll buy a nice bag, I'll splurge
Speaker 1: on something. And if enough people do that, it could
Speaker 1: start to turn things around.
Speaker 2: Another bright spot has been exports. About a third of
Speaker 2: China's GDP growth came from net exports last year. And
Speaker 2: what could possibly go wrong.
Speaker 3: We've been ripped off for decades by nearly every country
Speaker 3: on Earth, and we will not let that happen any longer.
Speaker 2: That's after the break. As premierly wrapped up his work
Speaker 2: report in the Great Hall of the People in Beijing,
Speaker 2: President Trump, on the other side of the world, was
Speaker 2: getting ready to address Congress in Washington, DC. In his
Speaker 2: first speech to both chambers since returning to office, Trump
Speaker 2: defended the use of tariffs.
Speaker 3: Whatever they tariff US other countries, we will care off them.
Speaker 3: Let's recip wi goal back and forth whatever they tax us,
Speaker 3: we will tax them.
Speaker 2: John, How do you think Trump's speech to Congress might
Speaker 2: have been received by Chinese leaders in Beijing?
Speaker 1: If you talk to policymakers, there is a broad assumption
Speaker 1: amongst them that Trump is looking for a deal. That's
Speaker 1: reinforced by when President Trump talks about how great a
Speaker 1: relationship he has with President husing Ping, and so I
Speaker 1: think when Chinese officials here President Trump telling Congress these
Speaker 1: things about more tariffs, more taxes, all of this stuff,
Speaker 1: I think they take it astride and they're trying to
Speaker 1: figure out what they can do to get the best
Speaker 1: deal they can and what President Trump wants.
Speaker 2: Do you think with these tariffs that we've seen so far,
Speaker 2: this trade war could escalate like it did in twenty eighteen.
Speaker 1: I think the officialdom in Beijing expects things to get
Speaker 1: more heated. But I think Beijing is balancing that with
Speaker 1: the damage that President Trump is causing to America's relationship
Speaker 1: with other countries Canada, Mexico, Europe, the Global South, and
Speaker 1: I think Beijing's sort of viewing it in a more
Speaker 1: holistic sense, in that, yes, all these tariffs on Chinese
Speaker 1: goods are going to hit the economy, and that is
Speaker 1: going to have a negative impact. But at the same time,
Speaker 1: maybe all of these actions by the Trump administration undermining
Speaker 1: the American partnerships and relationships that it has with countries
Speaker 1: around the world, that creates more space for China to
Speaker 1: actually strengthen it's trading relationships, links, it's diplomatic relationships with
Speaker 1: all these other countries who have been distanced by the
Speaker 1: Trump administration.
Speaker 2: Well, that would be a smart approach. Right when door closes,
Speaker 2: you try to look for others. Is there a risk
Speaker 2: there that US tariffs if they continue, if if they're
Speaker 2: piling on, could that dent that five percent growth target?
Speaker 1: I think it certainly could. When those tariffs get high enough,
Speaker 1: any advantage will be taken away, and so at a
Speaker 1: high enough rate, it will do real damage to Chinese
Speaker 1: exporters and that will have a real impact on the economy.
Speaker 1: In turn. What rate that is, I think it's hard
Speaker 1: to theorize, but I would expect Beijing to be ready
Speaker 1: to provide more support as those tariffs go up.
Speaker 2: So, with all that we've talked about, the challenges at
Speaker 2: home and beyond, is China's growth target of five percent achievable?
Speaker 1: The five percent target for GDP to me, is a
Speaker 1: relatively pessimistic target. It's in combination with the fact that
Speaker 1: they've also pledged a record amount of deficit spending and
Speaker 1: so China is having to spend more to stay in place.
Speaker 1: That to me suggests the government is looking around the world.
Speaker 1: It's looking at what the United States is doing, it's
Speaker 1: looking at what's happening in Europe, and it's thinking this
Speaker 1: year is going to be a tough year, and they're
Speaker 1: trying to be realistic about what they can get done.
Speaker 1: I think they didn't want to lower the target because
Speaker 1: it would have sent I think the wrong signal to
Speaker 1: bureaucrats around the country that maybe they didn't have to
Speaker 1: work as hard, they didn't have to try as hard.
Speaker 1: It would have also sent the wrong message to financial
Speaker 1: markets in terms of what to expect, how ambitious, how
Speaker 1: much effort the government is going to put into making
Speaker 1: the economy better again, reviving growth again. And so it
Speaker 1: sort of is an acknowledgement of the challenges, but also
Speaker 1: trying to show that the central government is up to
Speaker 1: the task of trying to tackle those challenges.
Speaker 2: This is the big take Asia from Bloomberg News. I'm
Speaker 2: wan Ha. This episode was produced by Young Young, Naomi
Speaker 2: M and Jessica Beck. It was edited by Patti Hirsh
Speaker 2: and Daniel ten Kate. It was fact checked by Naomi
Speaker 2: and Young and mixed and sound designed by Alex Duguerra.
Speaker 2: Our senior producer is Naomi Shaven. Our senior editor is
Speaker 2: Elizabeth Ponso. Our executive producer is Nicole Beemster Bower. Sage
Speaker 2: Bowman is Bloomberg's head of podcasts. If you liked this episode,
Speaker 2: make sure to subscribe and review The Big Take Asia
Speaker 2: wherever you listen to podcasts. It really helps people find
Speaker 2: the show. Thanks for listening, See you next time.