What is the financial crisis in China about?

China's NPC is supposed to provide answers to the economic crisis

This year's National People's Congress (NPC), China's bogus parliament, will meet on Friday with a delay of two and a half months. The unprecedented postponement owed to the corona epidemic should not have been easy for the party leadership. Because the regular gathering of around 3,000 "representatives of the people" is extremely important as a sign of stability and as a legitimation of party rule.

But the corona outbreak in Wuhan at the turn of the year and the rapid spread of the virus caught the party leadership off guard. The postponement of the so-called "two sessions" in China, along with the Political Consultative Conference that began on Thursday, was a clear symbol that the leadership is not in control.

It is all the more important that the meeting that has now been rescheduled runs properly, albeit with precautionary measures. There will be more meetings of working groups via video and press contacts via email. But for symbolic reasons, the opening meeting of the 3,000 delegates in the Great Hall of the People will be held, says Kristin Shi-Kupfer from the China Research Institute Merics in Berlin.

The Beijing Great Wall is a tourist attraction. In the Corona crisis, however, hardly any visitors come

Farewell to the usual economic growth

China is considered the first country to be hit by the pandemic and the first to get it under control again. But only one thing is certain: So far, there have been no "new Wuhans" with thousands of infections and Covid-19 deaths. And to ensure that it stays that way, the Chinese leadership is also reacting to the smallest new infection clusters, as is currently the case in the northeastern Jilin province, with tough quarantine measures.

These naturally have an impact on the economic recovery of the country, whose economic output shrank by more than six percent in April - an unprecedented process in "China of the post-Mao era". Against this background, many questions regarding the economic and social consequences of the crisis and the corresponding policy measures remain unanswered. The Chinese and worldwide public are eagerly awaiting information from the NPK meeting, where the previous resolutions of the party leadership will be approved.

Mercedes "Made in China" - Cars are being built again in the Dailmer-BAIC joint venture in Beijing

Thin Chinese "protective screen"

According to experts, the lockdown in China has had a massive impact on the economic existence of up to 30 million people: migrant workers in the cities, who are not included in the official unemployment statistics, as well as many small businesses and their employees. Many economists believe that the recovery of the Chinese economy, and ultimately that of the global economy hit by the global recession, depends to a large extent on the restoration of the purchasing power and demand of these people.

However, the measures taken so far by the Chinese leadership to support companies and households have been far less pronounced than abroad. According to the "Economist" they amount to around three percent of the gross domestic product (GDP), and the federal government's protective shield for German companies corresponds to around 15 percent of GDP.

Disneyland Shanghai was reopened under strict conditions

Mood barometer from the creative scene in Shanghai

Two examples from Shanghai show the difficulties and worries that the much-praised creative middle class in China has to contend with as a result of the pandemic - and receives little support from the state. The 32-year-old boxing trainer Liang Guanghuo had to close his chic fitness studio in Shanghai, which only opened in September, overnight after the corona outbreak. He had never heard of an impending lifting of the lockdown, so that he and his business partner decided in mid-March to give up the business and terminate the lease. "That meant an immediate loss of 300,000 yuan in investment for us. We had to convert the rooms into office space again, which cost another 50,000 yuan. There was no financial support," Liang told DW, who lost the equivalent of 50,000 euros suffered.

He complains that state-owned companies that have run into difficulties are allowed to suspend their rent payments. He and similar companies have no mention of this, which he describes as "unfair". But he believes that post-pandemic fitness and health will play an even bigger role and that his industry will have a "brilliant" future because of it. He builds on them, until then he'll stay afloat with outdoor and online coaching.

Life goes on - supermarket in Shanghai

Uncertain future

Gao Fang, 29-year-old furniture designer with a degree in Sweden, worked for a company in Shanghai that offers lifestyle products for affluent customers until the Corona crisis. "The company was already in financial difficulties, so my dismissal was not so surprising," she told DW. Her industry has recovered after observing that it "doesn't feel that there are no jobs", but has not yet found the right one. She is looking for a permanent position, "if possible with a global design company". She is currently trying to get by with unemployment benefits and freelance jobs. "I'm actually an optimistic person," says Gao, "but I feel like I'm in a crisis. There is no guarantee that everything will be okay. I worry what it will be like if I don't have a suitable one for a long time Find a job. "

How big will the "stimulus package" be?

At the Politburo meeting in April, China's leadership set the course for stimulating the economy: domestic demand and consumer spending are to be promoted and public spending increased. To this end, the deficit ratio is to be increased and special government bonds are to be issued, reports the SCMP.

However, many economists believe that China is holding back with a massive stimulus package, as it did after the financial and banking crisis in 2008, out of caution in view of the imponderables of the further course of the pandemic. This is also how the Politburo decision of April can be read: "Stability has first priority. We have to ensure that the epidemic does not recur. And we have to guarantee economic stability and the necessary livelihoods for the people." Observers therefore assume that there will be certain improvements in China's poorly developed social security system.

Party goals and global dependencies

A victim of the corona crisis could be the sacred cow of the official Chinese growth target, which had leveled off from double-digit rates to a "new normal" of around six percent in recent years after the opening under Deng Xiaoping. According to estimates by the International Monetary Fund, China's growth could only reach 1.3 percent in 2020 - far too little to achieve the goal set by Xi Jinping of doubling the Chinese economy between 2010 and 2020.

However, China's growth does not only depend on domestic consumption, foreign demand is just as important. Here, the export figures for April with a plus of 3.5 percent offer a certain ray of hope, after a slump of 17.2 percent in January and February and of 6.6 percent in March. Cancellations of orders from the also battered trading partners could reverse this trend, warn economists.

One of the imponderables of the global framework is not least the further course of the trade conflict with the USA, which is likely to intensify the closer the US presidential elections get. But the NPK is "not a forum for strategic and foreign policy issues," as Mikko Huotari, director of the China research institute Merics, emphasizes. The conflict with the USA will not be discussed publicly there. Current global tensions would influence the NPC meeting but were not one of its official topics.