After 1978, China has always had a steady GDP growth.
Due to the coronavirus and the economic crisis that followed, 2020 is the first year that government won’t try to achieve any specific GDP growth.
We believe that, although China could indeed reach the expected 6% GDP increase forecasted for 2020, the means to do it may result tricky, which means there would be no real 6% growth: in the end that would be kind of ineffective overall, and drain resources which can be allocated to resolve more important issues.
For this reason, in 2020 China has placed the objectives in two groups of six: the so called liuwen (translatable as 6 points to stabilize) and liubao (6 guarantees).
The liuwen, firstly pointed out in 2018, are:
Stabilizing employment: key point to ensure general stability in the country and the well-being of the citizens;
Stabilizing finance: especially focused on preventing fluctuation of the RMB;
Stabilizing foreign trade: according to how much foreign trade accounts for in China, it is mandatory to ensure this portion of revenue for the country. For this reason, measures will have to be taken, inviting investors;
Stabilizing foreign investment: improving the business environment and liberalizing the investment from the outside will help China’s growth during hard times;
Stabilizing internal investment: encouraging investment during the crisis, will help speeding up the recovery, and having no GDP target will make sure no “tricks” will be played to make numbers look better than reality;
Stabilizing market expectations: making sure the Chinese economy recovers and gets back to proper growing rates will help the growth itself – as more and more external and internal investors will trust China and its economy.
The liubao, which remind of the babao (8 guarantees) presented in 2008 to fight the economic crisis, are well connected with the liuwen:
Guarantee the employment of residents:indeed, ensuring employment for every person will empower citizens with more spending power;
Guarantee the basic life needs of the people: combined with a stable currency, it will improve the trust in the government and keep society stable as well;
Guarantee the main part of the market players: this includes support to the micro, small and medium enterprises which are providing work to hundreds of millions of people in China;
Guarantee food and energy reserves: although pandemic is not as dangerous as previously, China wants to be ready in case of more emergencies. For this reason, replenishing her food and energy reserves (reducing the dependency on oil and coal) are an important point;
Guarantee the stability of the supply chain for the industry: guaranteeing internal stability of the business at home will help restoring faith in economy in dire times and it will be a key point to ensure a quick recovery;
Guarantee the functions of the periphery of cities and counties: providing support to the less central areas of the country will be an extremely important point to guarantee the general stability. Among the important points here is the condition of internal migrant workers, who are in very risky positions since many are still without a job.
While the liubao are clearly short-term directed operations to ensure getting through the current crisis, the liuwen will be influencing the direction of China much more for the medium and long term. For this reason, it’s very important to understand them as soon as possible – as those concepts will likely define the future of investing in China.