Even after the impact of COVID-19 and heightened geopolitical tensions, China remains (by a large margin) Australia's largest export market. China is still the world's largest exporter and second-largest economy. What happens at the top of China's Government matters for many Australian businesses.
The Chinese Communist Party's (CCP) twice-a-decade week-long 20th National Congress closed on Saturday, 23 October 2022. At the Congress, China's President Xi Jinping was anointed for an unprecedented third five-year term as General Secretary of the CCP. A new seven-member Politburo Standing Committee (China's equivalent of a presidential cabinet) and 24-member Politburo (the CCP's top policy-making body) were announced, setting out China's primary leadership structure for at least the next five years.
It is clear from the Party Congress that the CCP is determined to move forward with its long-term plan of achieving "national rejuvenation" and "basically realising socialist modernisation" in China. You can read more about these concepts in relation to China's 14th Five-Year Plan, covering 2021 to 2025, and China's economic goals through to 2035 here.
Commitment to technological advancement
The Party Congress reiterated familiar themes, including innovation and technological advancement. In his opening speech, President Xi affirmed China's recent shift away from rapid economic growth and a greater focus on national self-sufficiency, especially in technology. He also emphasised the importance of education in developing China's own talent in science and technology.
Xi spoke of accelerating the launch of national projects with "strategic" and "long-term importance" without providing specific details. He also described the need to boost the quality of China's manufactured products and its capabilities in space transportation and digital development. China has previously announced plans to reach peak carbon emissions by 2030 and carbon neutrality in 2060. China will have to make rapid and significant advancements in green technologies to achieve these targets.
Drawing on the CCP's previously announced 100-year anniversary development goals - to "build a moderately prosperous society in all respects" by 2021 and to "build a modern socialist country that is prosperous, strong, democratic [in the Chinese way], culturally advanced and harmonious" by 2049 - President Xi listed the "essential requirements" for Chinese modernisation. The list began with upholding the leadership of the CCP, followed by "high-quality development", and included achieving "common prosperity" - moderate wealth for all rather than just a few - and "harmony between humanity and nature." I have previously written about the concept of 'common prosperity' here.
High-quality economic development a top priority
China's official economic growth figures were postponed during the Congress. Released immediately after the Congress, the figures show that China's economy grew by 3.9 per cent in the last quarter. Although this was higher than expected, it is far below the rate of expansion China has seen for decades and short of the 5.5 per cent growth target set in March.
At the Congress, Xi emphasised that economic development was the party's "top priority," but added that high-quality development needs to be balanced with national security.
'Dual Circulation' remains a key strategy
China has pitched its quest for high-quality development on an economic policy built around the 'Dual Circulation Strategy'.
Introduced in 2020, this strategy focuses on the development of China's domestic demand (domestic circulation), while simultaneously developing conditions to facilitate foreign investment (inbound and outbound) and boost production for Chinese exports (international circulation).
Domestic 'circulation' - promoting domestic consumption
The CCP aims to achieve "Chinese-style modernisation". According to President Xi, this involves "substantially growing" China's middle-income group as a share of the total population by 2035, but doing so in a way that does not follow the economic and political policies seen in advanced economies.
In January 2022, China had more than 400 million middle-income earners, or 140 million families, as part of its 1.4 billion population. China will seek to double the number of middle-income earners in the years ahead. To do this, the CCP will continue to seek to bolster China's domestic market, especially in respect of domestic consumption.
Australian companies involved in businesses that provide for the growth of the middle class while promoting social cohesion (such as the vocational training, childcare, elderly care, clean energy, green technologies and related industries such as the medical and specialist construction industries) could benefit from opportunities to 'invest in China for the Chinese market'.
International 'circulation' - a different kind of 'opening up'?
At the Congress, President Xi indicated a commitment to continuing reform and 'opening up'. He stated that Beijing would introduce changes to China's economic policy (without providing any details) to improve growth. Xi also explained that maintaining China's strategic trade and investment links with the rest of the world and economic opening "will only be wider."
It is probable that China's ongoing 'opening up' and development of strategic trade and investment links will be tied to issues of national security. In other words, China will likely focus its trade and investment activities on countries that have signed up to its Belt and Road Initiative, ASEAN countries, and those involved in the Shanghai Cooperation Organisation (SCO). The SCO currently has 18 members, with other countries (including Saudi Arabia) expressing an interest to join. There is also the possibility that Chinese trade and investment will expand through the Regional Comprehensive Economic Partnership (RCEP), which includes all the ASEAN members together with Australia, New Zealand, Japan and South Korea.
If China is permitted to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), this could also impact the direction and focus of China's outbound trade and investment. The CPTPP is an Asia-Pacific focused free trade agreement between Australia, Canada, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
While the Chinese Communist Party Congress was short on specific details, it highlighted the fact that China has set in place for the foreseeable future a government structure that is intent of achieving its core objectives, such as "national rejuventation", "common prosperity", "socialist modernisation", "high-quality development" and "harmony between humanity and nature". Furthermore, the Chinese Government will continue to pursue these objectives based on the 'dual circulation' economic strategy.
Therefore, even with all the uncertainty that exists in the geopolitical and global economic environment, there will be opportunities for Australian businesses who understand the impact of China's objectives on their markets.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.