Business
China sets ambitious 2024 economic target
China has set an ambitious growth target of around 5% for this year, as it outlined a series of measures aimed at boosting its flagging economy.
Premier Li Qiang made the announcement at the opening of the annual National People’s Congress (NPC) on Tuesday.
Mr Li acknowledged that China’s economic performance had faced “difficulties”, adding that many of these had “yet to be resolved”.
It comes as China struggles to reinvigorate its once-booming economy.
“Risks and potential dangers in real estate, local government debt, and small and medium financial institutions were acute in some areas,” he said. “Under these circumstances, we faced considerably more dilemmas in making policy decisions and doing our work.”
A series of other measures to help tackle the country’s slow recovery from the pandemic were also announced, including the development of new initiatives to tackle problems in the country’s crisis-hit property sector. Beijing also aims to add 12 million jobs in urban areas.
Regulation of financial markets will also be increased, said Premier Li, while research will be stepped up in new technologies, including artificial intelligence (AI) and life sciences.
Along with measures to boost the economy, defence spending will be increased by 7.2% this year.
Beijing’s defence budget is closely watched by its neighbours and the US, due to concerns over its intentions as tensions remain high over Taiwan.
For decades the Chinese economy expanded at a stellar rate, with official figures putting its gross domestic product (GDP) growing at an average of close to 10% a year.
On the way it overtook Japan to become the world’s second largest economy, with Beijing claiming that it had lifted hundreds of millions of people out of poverty.
Beijing says that last year the economy grew by 5.2%, which even at that level is low for China. However, some critics argue the real figure could be less than a third of that.
“I think the next five or 10 years is going to be difficult,” Andrew Collier Managing Director from China research firm Orient Capital Research told the BBC.
“A lot of economists think the numbers are completely fabricated. The idea of 5.2% or 5.5% growth is much likely wrong. It’s more like 1% or 2%,” he added.
Whichever figures are accurate, it is clear that this vast country and its leaders face a daunting array of economic challenges.
That list includes a property market in crisis, a shaky stock market, high youth unemployment and the threat of deflation as consumer prices continue to fall.
Those immediate problems are compounded by longer term issues from trade and geopolitical tensions to China’s falling birth rate and aging population.
Economic challenges
One of the most serious of these challenges are associated with the housing market, which according to the International Monetary Fund (IMF) accounts for around 20% of the economy.
It is a major problem “not just for property developers but also the regional banks that are highly exposed to it,” Dan Wang, chief economist of Hang Seng Bank (China), said.
The real estate industry crisis was highlighted last week when the country’s biggest private developer Country Garden was hit with a winding-up petition in Hong Kong by a creditor.
It came just a month after debt-laden rival Evergrande was ordered to liquidate by a court in the city.
And while much of the rest of the world has struggled with soaring prices in the wake of the pandemic, China was one of the few major economies to avoid high inflation.
Now though it is having to deal with the opposite problem – persistently falling prices or deflation.
Consumer prices in China fell in January at the fastest pace in almost 15 years, marking the fourth month in a row of declines.
It was the sharpest drop since September 2009, when the world economy was still reeling from the effects of the global financial crisis.
Deflation is bad for economies as it can mean that people keep putting off buying big ticket items, like washing machines or cars, on the expectation that they will be cheaper in the future.
It also has an impact on people and businesses with debts. Prices and incomes may fall, but debts do not. For a company with falling revenue, or a household with a declining income, debt payments become more of a burden.
All of this means China is lacking something vital to a strong economy: confidence. And authorities have been scrambling to reassure investors and consumers.
“Messaging from policymakers continues to be about restoring confidence and domestic demand,” Catherine Yeung from Fidelity International told the BBC.
So far that has meant a series of relatively small measures targeting different parts of the economy.
This year alone, borrowing costs have been cut and direct support offered to developers along with other actions to tackle the property crisis.
Earlier this month, in a shock move, the head of China’s stock market regulator was replaced, in what was seen as a signal that the government was ready to take forceful measures to end the rout in its $8 trillion stock market.
Officials have also moved to clamp down on traders betting against shares in Chinese companies, and imposed new rules on selling shares at the start and end of the trading day.
An aging China at odds with West
Beyond these immediate issues China also faces a number of more far-reaching challenges, including slowing productivity growth and an aging population.
“The demographic dynamics are quite unfavourable, with the population aging fast due to the one-child policy,” Qian Wang, chief Asia-Pacific economist at investment firm Vanguard said.
“Unlike Japan that got rich before it got old, China is getting old before it gets rich,” she added.
There is also the seemingly intractable geopolitical issue of Taiwan.
Beijing sees self-ruled Taiwan as a breakaway province that will eventually be part of China, and has not ruled out the use of force to achieve this. But Taiwan sees itself as distinct from the Chinese mainland.
Taiwan is a key flashpoint in the tussle between China and the US for supremacy in Asia.
This, at the very least, greatly complicates China’s relations with the US and many other major Western economies.
There is also the ongoing trade dispute with the US, which started in 2018 under then-president Donald Trump and has shown no sign of easing during the Biden administration.
A potential second term in office for Mr Trump could well see tensions ramp up between Washington and Beijing.
Mr Trump, in characteristically hawkish comments about China, said he would impose more tariffs on its goods if he wins the US presidential election in November.
In an interview with Fox News, he said the tariffs could be in excess of 60%: “We have to do it,” he said.
While that may make for plenty of headlines, Ms Yeung suggests financial markets may be able to take this in their stride.
“Most of this negative news has already been factored in to share valuations,” she said.
Whether Mr Xi’s long-term plans for China will turn around his country’s fortunes remains to be seen.
What is clear though is that its more than 1.4 billion people are unlikely to enjoy a return to double digit annual growth, and the prosperity that comes with it, anytime soon.
— Reports /TrainViral/
The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.
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