Flags flutter in the breeze before the start of the National People's Congress in Beijing this week. Photo: AFP / Eyepress / John Sun

These are difficult days in China with the economy catching a bad dose of Beijing flu. But it is unlikely that Premier Li Keqiang will splutter when he gives his state-of-the-union-style address at the 13th National People’s Congress in the Chinese capital on Tuesday.

Wrapped up in the prosaically-named annual Government Work Report, he is expected to recap on last year’s “achievements” and outline 2019 targets, such as GDP growth.

At the core of his speech will be the domestic policy mix defined by the three “critical battles,” which were unveiled in 2017, to tackle pollution, financial risks and poverty.

Tax cuts worth 1.3 trillion yuan (US$194 billion) look certain to be rolled out to help the private sector boost manufacturing and derail the dangers of rising unemployment.

“We have updated the tax levy system and statistical accounting system to prepare for further reductions,” Ren Rongfa, the deputy head of the State Taxation Administration, said.

Once the National People’s Congress rubber-stamps the move, value-added tax will be cut by up to two percentage points, triggering an 800 billion yuan windfall for non-state-owned businesses.

“A more aggressive tax reduction is required to ease companies’ burden and stabilize their expectations for future operations,” Liu Shangxi, the head of the Chinese Academy of Fiscal Sciences, said.

Private sector

Robin Xing, the chief economist in China for Morgan Stanley, echoed that view when he pointed out:

“The move is likely to lift companies’ profits by 2%. The effect will be seen later in lower consumer product prices and higher profits by manufacturers.”

During the past nine months, the private sector has been hit hard by the trade war with the United States after Washington-imposed tariffs worth up to $250 billion kicked in on Chinese imports entering the US.

But that is only part of the story.

Back in January, the National Bureau of Statistics, or NBS, announced that GDP growth for 2018 weakened to what at first glance appeared a robust 6.6%. In reality, this was the slowest pace in nearly 30 years, as manufacturing stalled and consumer spending dipped.

Smartphone shipments also dropped while car sales plunged 5.8% last year to 22.35 million vehicles, which was the first annual decline since 1990.

The opening months of 2019 have been just as grim. In February, the Ministry of Commerce and the statistics bureau reported that sales growth fell to its lowest levels for eight years during the Chinese New Year festive period.

“The medium- to long-term accumulated contradictions and risks throughout economic development are going to become more prominent in 2019,” Wang Bin, a Ministry of Commerce official, told a media briefing. “The pressure facing the consumer market will increase and consumption growth is very likely to slow further.”

Last week, there was further evidence of a cooling business environment when data released by the NBS showed that factory activity in the world’s second-largest economy contracted to a three-year low in February.

A breakdown of the official Purchasing Managers’ Index, or PMI, revealed that export orders fell at the fastest pace since the global financial crisis in 2009.

“For now, the official PMIs suggest that growth remains under pressure and we expect conditions to weaken further in the coming months,” Julian Evans-Pritchard, a senior China economist at Capital Economics, said.

“While there are tentative signs that credit growth is now starting to bottom out, we don’t think that will put a floor beneath growth until the middle of this year at the earliest,” he added.

Overall economy

As for the overall economy, Premier Li will probably map out GDP growth targets of between 6% to 6.5% in 2019, which would be down on last year’s 6.6% figure.

Employment issues will also be addressed as will “poverty alleviation” and new foreign investment laws, which will be widely scrutinized by the international community, especially the US with a trade deal insight.

An all-encompassing directive to further strengthen the Communist Party’s grip on power is yet another policy decision that will be dissected by the foreign media when 2,975 CCP delegates gather in the Great Hall of the People.

“There’s a lot of anxiety at the moment, so I suspect this year will really be about this oasis of calm in the midst of a typhoon of uncertainty,” Kerry Brown, the professor of China studies at King’s College London, told The Daily Telegraph, an influential British national newspaper.

“Whether people buy into that or not, the show will go on.”

Indeed, it will, with Li conducting the mood music when the curtain goes up on the National People’s Congress before President Xi Jinping takes over the baton and the podium.

Read: President Xi to map out China’s road ahead

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