Chinese Premier Li Keqiang, standing, before making his speech at the National People's Congress in Beijing. Photo: AFP / The Yomiuri Shimbun

Polite applause greeted Premier Li Keqiang’s address on the opening day of the National People’s Congress in Beijing. The short burst of appreciation from the Communist Party faithful echoed around China’s Great Hall of the People, punctuating his paired-down phrases.

Indeed, it was beautifully stage-managed and predictable, unlike Li’s somber tone.

Outlining the “tough challenges” ahead, he warned the 2,975 delegates gathered in the grandiose auditorium that China’s economic growth target would be cut this year to levels not seen for 30 years.

In his annual state-of-the-union-style update, he said:

“We must be fully prepared for a tough struggle. In pursuing development this year, we will face a graver and more complicated environment as well as risks and challenges … that are greater in number and size.

“We have made a moderate adjustment to our projection on the basis of a thorough assessment of destabilizing factors and uncertainties affecting the economic performance.”

Pausing to read from the annual Government Work Report, Li pointed out that GDP growth had been reduced to between 6% and 6.5% for 2019.

Last year, it was 6.6% which at first glance appeared robust but was, in fact, the lowest level since 1990.

A cooling economy and the fallout from China’s trade war with the United States have ravished areas of manufacturing with the private sector bearing the brunt of the downturn.

To prop up small- and medium-sized companies, value-added tax, or VAT, will be slashed and major state-owned banks have been ordered to increase lending. This is hardly surprising as these businesses create 90% of the nation’s new jobs, despite being starved of funding.

Up to 2 trillion yuan (US$298 billion) in tax cuts have also been penciled in while infrastructure investment will be ramped up with the Ministry of Finance announcing plans to increase the special bond issuance quota for local governments to 2.15 trillion yuan ($320 billion).

“A smaller target means the government [has] acknowledged the downside risks that are most likely coming from trade tensions with the United States and sectors involving small- and medium-sized companies,” Raymond Yeung, the Greater China chief economist at ANZ Research, said.

At least there are signs that “trade tensions” are easing between Washington and Beijing with a possible deal in the pipeline.

Li also tried to reassure the international community that China will focus on proposals to further open up to global competition.

The US and the European Union have been constantly calling for a “level playing field” for foreign companies after being stifled by red tape and allegations of forced technology transfers.

Beijing has countered by pledging a series of reforms during the past three years. For the EU, this has become known as “promise fatigue.”

“[We will] create a fair and impartial market environment where Chinese and foreign companies are treated as equals and engage in fair competition,” Li said during a speech, which lasted more than 90 minutes, and was at times short on details.

He also revealed that military spending would rise by 7.5% this year to 1.19 trillion yuan ($177.6 billion) despite the slowing economy.

Part of President Xi Jinping’s grand vision involves restructuring the armed forces and beefing up the PLA Navy with carrier groups.

But this has left China’s neighbors nervous of the country’s growing power, as Beijing steps up its rhetoric against Taiwan while asserting its vast territorial claims in the disputed South China Sea.

“No one has presided over this level of Chinese military development in Chinese history before Xi Jinping,” Andrew Erickson, the professor of strategy at the US Naval War College’s China Maritime Studies Institute, told CNN.

“China’s navy is receiving warships so quickly that Chinese sources liken this to dumping dumplings into soup broth.”

While defense spending by the world’s second-largest economy is dwarfed by the US, which has a budget of $750 billion for 2019, it is still the second-largest in the world.

“China has long maintained its military is for the defense of its borders but that definition has broadened over the years,” Sam Roggeveen, a visiting fellow at the Australian National University’s Strategic and Defence Studies Centre, said. “The West will be very interested to see what the funds are used for, particularly if it is used on assets that can project force over great distances.”

Yet these concerns were dismissed by Zhang Yesui, the spokesman for the National People’s Congress, when he stressed that China “doesn’t pose a threat to other countries.”

“[Our] limited spending on defense only aims to maintain the sovereignty, security and territorial integrity of the country,” he told a media conference.

How that will play out on the international scene is open to debate. But it is unlikely to prompt polite applause.

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