China pledges modest growth for 2021 - and electoral control of Hong Kong

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Pledging to press ahead with “the great spirit forged in the battle against COVID-19,” China’s leaders have revised their plans for the economy by setting out to build one that can stand alone – without the support of U.S. technology – while escalating their demands for conformity to Beijing’s cultural and political dictates, particularly in Hong Kong.

And with national security a paramount priority for a country gazing out at an unsettled world, China is easing its emphasis on breakneck economic growth.

Indeed, with much of the globe still crippled by the pandemic, Chinese Premier Li Keqiang set the country’s targets for GDP growth Friday at “over 6 per cent” for 2021, considerably below private economic forecasts that have suggested 8.5 per cent is achievable.

Last year China’s economy expanded 2.3 per cent after staging a robust recovery from pandemic shutdowns. In setting a comparatively low target for growth this year, China’s leaders are giving themselves room for other priorities. In terms of fiscal policy, it suggests a reversal of the raft of subsidies and loans used to keep the economy moving during the pandemic.

But China is also setting out on a broader – and expensive – mission to distance itself from the U.S. by boosting its own capability to build the full range of technologies that underpin modern life.

“The target for this year will be working on becoming technologically independent,” said Imogen Page-Jarrett, a research analyst with the Economist Intelligence Unit in Beijing.

The Chinese government is proposing outsized spending to catch up with, and perhaps surpass, Western rivals in technology, setting a target for increases in research and development spending of more than 7 per cent a year. Defence spending will rise 6.8 per cent.

“Innovation remains at the heart of China’s modernization drive,” Mr. Li said in promising a 10-year action plan for basic research in his delivery of the country’s annual work report, which is akin to a state of the union address.

“From what China has indicated so far, national security will trump everything when it comes to policymaking,” Ms. Page-Jarrett said. “That means that China will be willing to compromise on efficiency in its economy in order to have control – and have security when it comes to its supply chains.”

In setting a GDP target that is relatively modest for a country accustomed to roaring growth, China’s leaders are also acknowledging that caution is needed, particularly as they navigate the increasing turbulence of the country’s economic and political links with the U.S.

The “more restrained and conservative” target comes as “Sino-U.S. relations remain shrouded in layers of fog,” while China’s own economy seeks new sources of growth, said Nie Hua, a professor with the school of economics at Renmin University.

China policy under U.S. President Joe Biden “in the short term cannot yet be seen too clearly, but that strategy is likely to continue treating China with a combination of competition and containment,” Prof. Nie said.

But perhaps the most significant changes are coming to Hong Kong, where Mr. Li promised to “improve the relevant systems and mechanisms” for enforcing laws. For weeks, Chinese officials have indicated that they intend to ensure Hong Kong is run by people loyal to Beijing. Now, the Chinese government is formalizing that, signalling changes to the electoral system in Hong Kong that will make it easy to block pro-democracy forces.

The electoral body that chooses the city’s chief executive will be “adjusted and improved,” said Wang Chen, vice-chairman of the National People’s Congress Standing Committee, on Friday. It will directly select a larger number of candidates for the city’s Legislative Council and participate in the nomination of all candidates.

“The chaos in Hong Kong society shows that there are obvious loopholes and shortcomings in the current electoral system … which provides an opportunity for anti-China chaos in Hong Kong to seize the power of governance,” Mr. Wang said. “Effective measures must be taken to block these pawns of anti-China forces from being elected … and knock them out once and for all.”

Hong Kong authorities have already arrested large numbers of politicians and candidates deemed insufficiently loyal to Beijing.

At the same time, China’s leaders say they remain worried about economic threats.

“As the coronavirus continues to spread around the world, instability and uncertainty are mounting on the international landscape, and the global economy continues to face grave challenges,” Mr. Li said.

If last year was devoted to protecting livelihoods, this year will be devoted to stabilizing growth, Chinese scholars said. In 2021, Beijing wants “to achieve normalization of the economy,” said Zhao Xijun, deputy director of Renmin University’s Finance and Securities Institute.

China wants its consumers to buy more appliances, its developers to tear down and replace more old communities, and its people along the Yangtze River to stop fishing in those waters for a decade, in order to help stocks recover.

While China will continue to embrace Western medicine, the government will launch a major effort to promote traditional Chinese medicine.

Beijing is also pledging to strengthen its grasp on parts of the country where language and political beliefs differ from those of the Han Chinese majority. After the introduction of new policies to promote “unity” in Tibet and Xinjiang and banish local-language instruction in areas with large Mongolian and Korean populations, Mr. Li has pledged “stepped-up” efforts “to promote standard spoken and written Chinese.” China will improve collaboration between eastern provinces and poorer regions in western China, he said. Such programs have been used to transfer hundreds of thousands of Uyghur workers from Xinjiang to factories thousands of kilometres away.

With reporting by Alexandra Li

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