Can Economic Growth Happen with Priority on Military Expansion?

China has seen its economy exhausted by extreme infection control measures, while also experiencing increasing difficulty in obtaining advanced technologies due to restrictions imposed by nations such as the United States. Even so, will China be able to achieve high growth despite the continuation of its unbridled military expansion?

China’s National People’s Congress has opened its annual session in Beijing. The gross domestic product growth target for this year was lowered to around 5% from last year’s around 5.5%. The target has been lowered for the second consecutive year.

The zero-COVID policy intended to suppress the spread of the novel coronavirus with strict restrictions on activities brought about a decline in production capacity due to factories suspending operations, high unemployment and flagging consumer confidence. As a result, China posted a growth rate of 3% last year, well below the target.

The administration of Xi Jinping has just started its unprecedented third term. Even though there are views that the scrapping of the zero-COVID policy could lead to substantial economic growth, given the delay in the normalization of the economy, Beijing set a modest growth target apparently to place priority on achieving this mark.

When delivering a government work report, Chinese Premier Li Keqiang emphasized that the recovery of consumption is the first priority of the country’s economic policy, so efforts will be made to expand public and private investment to boost domestic demand. He also stated that the government would develop a new system under which it will take the lead in promoting technological innovation of Chinese companies without relying on other countries.

The United States has enhanced its decoupling from China in terms of advanced technology by taking measures such as restrictions on the semiconductor trade. It can be said that Beijing has taken a strategy of strengthening the foundations of domestic production and consumption in order to weather the situation.

China’s population, however, declined last year for the first time in 61 years, so growth based on its abundant labor force and huge consumer market is becoming less promising.

The Xi administration has also tightened its grip on major domestic tech companies that had grown to wield great power. Under such a regime, it is unclear whether Beijing can follow through on its strategy.

At the same time, China allocated about ¥30 trillion to this year’s military budget, exceeding its growth target with an increase of 7.2% from the previous year. The figure is 4.5 times higher than Japan’s defense budget. No change has been seen in China’s aggressive stance of pursuing its military buildup, having in mind forcible unification with Taiwan.

As long as China continues to escalate tensions by intimidating Taiwan and supporting Russia’s invasion of Ukraine, stability in foreign circumstances essential for China’s economic recovery cannot be expected. Xi should be aware of this.

Li, who is leaving the post of premier at the ongoing congress, made an unusual remark, saying that the government needs to focus on the opinions and proposals of the people. At the end of his tenure, he may have issued a warning about a system in which it has become difficult to correct policy failures with power concentrated in Xi.

(From The Yomiuri Shimbun, March 6, 2023)