Ukraine war weakens markets
China’s growth target is plummeting
3/5/2022 5:23 am
Politically, China is backing the Kremlin for the invasion of neighboring Ukraine. But the second largest economy in the world is struggling economically with the negative consequences of the conflict. It lowers its growth target to the lowest level in three decades.
In view of growing economic uncertainties, also due to the Ukraine war, China’s government has set the lowest growth target for this year in three decades at “around 5.5 percent”. Nevertheless, military spending is expected to grow at an above-average rate of 7.1 percent in view of the heightened tensions with Taiwan, the USA and neighboring countries in Asia.
In a speech at the start of the annual session of the People’s Congress in the Great Hall of the People in Beijing, Prime Minister Li Keqiang prepared the nation for an economically difficult year. The prime minister justified the reduction in the growth target for the second-largest economy under “triple pressure” from shrinking demand, disrupted supply chains and weakening expectations. The global economic recovery is also lacking impetus. Reaching even the lower goal “requires hard efforts,” Li Keqiang said in his statement to the nearly 3,000 delegates.
The start of the annual parliamentary session was overshadowed by a new missile test by North Korea, which, according to information from Japan and South Korea, had allegedly fired a ballistic missile. The fact that North Korea’s ruler Kim Jong Un chose the start of the annual conference in Beijing for his new military provocation is likely to irritate his big neighbor.
China increases military spending over conflict with Taiwan
UN resolutions prohibit North Korea from testing such missiles, which could also carry nuclear warheads. In his speech, the prime minister did not address the North Korean missile test. Li Keqiang also made no mention of the Russian invasion of Ukraine. In any case, his speech contained hardly any foreign policy aspects, except that China wanted to work on a “new type of international relations”. China has not condemned Russia’s invasion of Ukraine and has backed Russian President Vladimir Putin by criticizing the US and NATO’s eastward expansion.
The sharp rise in military spending has drawn particular attention given the communist leadership’s threats to democratic Taiwan and territorial disputes with neighbors in the South and East China Seas. Li Keqiang reiterated China’s will to “reunify” with Taiwan. He opposed “separatist activities” aimed at “Taiwan independence” and foreign interference.
Tensions over Taiwan are fueling new concerns amid the Russian invasion of Ukraine. Beijing sees free Taiwan only as part of the People’s Republic and is threatening to conquer it. The US has committed to Taiwan’s defense capability and is supplying weapons. Previous US administrations have left open whether they would come to the island’s military aid in the event of an attack. But US President Joe Biden said in October that the US had an “obligation” to do so.
War leads to fluctuating commodity prices
Economically, the prime minister prepared the billions of people for greater uncertainties. In his opinion, the raw material prices, which have risen sharply due to the Ukraine crisis, remain high and tend to fluctuate further. The Prime Minister spoke of a “volatile, serious and uncertain” environment. “It is becoming increasingly difficult to maintain steady export growth.” The supply of energy and raw materials is not sufficient.
There are also sporadic outbreaks of the Covid 19 pandemic in China. The imbalances in the budgets of some local governments continued to grow. There are “many potential risks” in the economic and financial sector, said Li Keqiang in his speech, which lasted around an hour. In the previous year, his government had set “more than six percent” as a growth target. However, the economy even grew by 8.1 percent last year due to the low basis for comparison due to the pandemic. However, momentum weakened significantly towards the end of the year.