Liang Hui, known in english as “Two Sessions” or “Two Meetings”, are the two yearly gatherings that define the politics in China: one includes all the CPPCC (Chinese People’s Political Consultative Conference) members of an area, the other the members of National People’s Congress. They are held usually close to another, so that’s why they are always considered together. This year the CPPCC session was in 21 May 2020, while the National People’s Congress session was in 22 May 2020, just a day later.
Contrary to what it might sound, both sessions are also attended by representatives of other parties (besides the Communist Party of China) as well as non-politicians, including (but not limited to) business people.
The Two Sessions are usually held between January and March – this year, due to the COVID-19 outbreak it was delayed till May.
We listed three of the most important points you should know about the Two Sessions of 2020:
1. Addressing Poverty and Unemployment: according to a plan Chinese government made in the past, after 2020 there should be no more people living under the level of absolute poverty in China. Regardless of the pandemic, this is still the key topic for this year: finding new jobs for those people, while making sure they can be sustainable will be the first step. What does this mean for investors? In the past years, China managed to lift out of poverty hundreds of millions of people: with the last almost 6 millions to be lifted this year, there will be a general improvement of the average spending capability of the poor strata, which will eventually translate in a bigger market for some basic needs;
2. Tax Reduction: tax and other fees will be lowered. VAT, which already was decreased, in the past year, from 16% to 13%, in 2020 will get down to 10%: all these reductions together make for an expected total of 500 billion RMB. Lower VAT means also moving more the spending power in the hands of the consumers, which translates into more sales potential in China;
3. Subsidizing businesses: China is giving a strong support to resume economy, specifically focusing individual basic needs (public transportation, work-related healthcare, unemployment) and business subsides (tax and fees have been temporarily reduced for SME, and 2020 income tax for micro and small enterprises has been suspended till 2021). The expectations? 2.5 trillion RMB of financial burden will be lifted – almost a 6% increase when compared with 2019, which was already an historical record worldwide. As a final note, special support is going to be provided to restaurants, hotels, tourism services, entertainment and civil aviation – all businesses that were affected a lot by the pandemic. This is true for both local and foreign businesses, which means China is effectively encouraging investment more and more to keep the economy in motion instead of directing it from A to Z.
Of course, all the three measures will draw heavily on China’s economy. It means that for a while the Chinese government will have to lower its spending potential or figure out an alternative solution.
Although it looks that this will have a short term hit on China, we can’t avoid to notice that, since the 1929, when an economic crisis happens, creating jobs to fight unemployment and poverty, reducing taxes on lower classes and supporting smaller businesses had always been the right key points for the governments to avoid worse consequences.