NPC: Don't get too excited

The annual session of the National People’s Congress (NPC) begins today – hold on to your hats. Okay, don’t. The NPC delivers in terms of government-issue black Audis, Hong Kong journalists harassing the central bank governor for quotes, and delegates clad in the extravagant dress of their respective minority groups. But it does not do surprises.

The NPC is most readily described as China’s “rubber-stamp parliament,” a 3,000-member legislative body that is controlled by the Communist Party. The party’s message of choice is usually disseminated via the media in advance of the big event (well, events – don’t forget the tongue-twister that is the Chinese People’s Political Consultative Conference).

Inflation controls and super-ministries were the unsurprising flavor of 2008, along with senior parliamentary appointments that reflected changes made to the Politburo Standing Committee several months earlier. In 2007, labor and tax laws took center stage, but these pieces of groundbreaking legislation had already been through several committees and numerous drafts. The “new socialist countryside” theme of 2006 was applauded long before the delegates filed into the Great Hall of the People, as was the mantra to pursue sustainable growth rather than growth at any cost.

Rural and social issues are fixtures on the NPC agenda, and 2009 is likely to be no different. The Social Security Law is said to be ready for approval, proposed health care reforms have already attracted widespread attention, and – as is the case with most governments when the spotlight is shining – more money will be thrown at education. These are the foundations of China’s social safety net; reinforce them and people will become bold enough to save less and spend more, or so the theory goes.

There has also been much talk about policies intended to boost consumption in the short term. However, it remains to be seen how many of the suggested measures (which range from income tax cuts to shopping vouchers) are actually implemented.

One thing the pundits don’t expect to see is the unveiling of another big government stimulus policy. The aforementioned social spending represents the soft, longer-term stimulus. We have already heard a great deal about the hard stimulus, a combination of industrial stabilization and infrastructure investment.

Details of bailouts for individual industries – autos, steel, petrochemicals, metals, machinery, ship-building, electronics and IT, and textiles and other light industries (but as yet not real estate) – have emerged in recent weeks. What still lacks detail, though, is the towering US$584 billion two-year stimulus package announced in November.

The Ministry of Finance’s 2009 budget plan, which is set to be approved by the NPC, allows for a budget deficit in the region of US$138 billion (or 3% of GDP, the highest level since 1980). This increased deficit will be a reflection of both lower government revenues and higher fiscal spending, but it is unclear where the US$584 billion stimulus fits into this.

At the NPC we may finally get some answers to questions that have been lingering for months – how much of the stimulus package represents new spending, how will it be distributed, and what proportions of the total pot will come from central and provincial governments respectively?

The ongoing lack of transparency is a source of concern to some observers: a Shanghai lawyer has initiated shareholder lawsuits and launched a public campaign to try and get more information, while Communist Party elders said in a letter to President Hu Jintao that they were worried that corrupt elements will use the stimulus package as an “opportunity to fatten themselves.”

The NPC might not deliver much in the way of surprises, but it should be used as an opportunity to clarify and contextualize the flood of information, disentangling fact from fiction.
The Shanghai Composite Index rose 6.1% yesterday – its largest single-day gain since November – reportedly on the back of hopes of further stimulus measures. Will the typically broad brushstroke approach of the NPC just bring the index back down again?