China beefs up military spending, morphs from ‘COVID zero’ to ‘dynamic zero’

Singapore: China’s increase in military spending will outstrip its economic growth this year as Beijing declares it will safeguard its security and development interests.

The 7.1 per cent jump in defence spending is the largest official increase in three years and will top the Chinese economy’s 5.5 per cent growth - signalling Beijing is preparing for the international arena to deteriorate further.

Chinese Premier Li Keqiang speaks at the National People’s Congress on Saturday. Credit: Bloomberg

Chinese Premier Li Keqiang told the National People’s Congress on Saturday that the “external environment has become increasingly volatile and grave”.

“This year we will fully implement Xi Jinping’s thinking on strengthening the defence forces and the military strategy for the new era,” he said.

“We will enhance our military training on combat readiness and safeguard China’s sovereignty, security and development interests.”

The message, delivered in the Great Hall of the People on Saturday at the opening of China’s largest annual political gathering, follows Russia’s invasion of Ukraine and Beijing’s continued threats to neighbouring Taiwan.

“We remain committed to resolving the Taiwan question,” Li said. “We firmly oppose any separatist activity seeking independence and firmly oppose foreign interference. All of us on both sides of the Taiwan Strait will come together to advance the glories of China’s rejuvenation.”

China’s economy is facing growing headwinds as it attempts to contain COVID-19. Credit: Sanghee Liu

The Chinese government has vowed to unify with Taiwan by force if necessary. Russia’s invasion of Ukraine has raised concerns that the Chinese Communist Party could target Taiwan - a democratic island of 24 million that it has never governed. But Li’s comments on Saturday did not escalate Beijing’s threats and are consistent with its long-held determination to ensure Taiwan is not recognised as independent by the international community while attempting to coerce it into unification.

Li praised the implementation of national security laws in nearby Hong Kong which have wiped out dissent in the former liberal enclave and said the central government in Beijing would continue to exercise overall jurisdiction over the former British colony and Macau. “These two regions will integrate into the country’s overall development and maintain long-term prosperity and stability,” he said.

The Chinese Premier told the more than 2800 politicians gathered that China’s economy faced the “triple pressures” of slowing demand, supply disruptions and weakening expectations as it continued to grapple with the coronavirus pandemic. Those challenges forced the Chinese government to set a growth rate target of 5.5 per cent - its lowest rate in three decades - and one that could have flow-on effects for Australian exports such as iron ore which continue to power the Chinese economy.

China has maintained a COVID-zero policy throughout the pandemic to maintain government control and reduce the population’s vulnerability to less effective vaccines and high-density living.

But that strategy has created a stop-start economy in some of its biggest cities, including Hong Kong, which is now struggling to get on top of 50,000 cases a day - China’s largest outbreak of the pandemic.

Fixed-asset investment in major infrastructure is expected to be a key driver of economic growth in China. Credit: Sanghee Liu

The outbreak has forced a shift from COVID-zero to “dynamic zero” which will allow businesses to continue operating and attempt to avoid citywide lockdowns while keeping the border shut.

“Transitioning to a ‘dynamic zero’ COVID policy enables a more targeted and flexible approach to containing COVID-19 which can help to limit some of the downside pressure,” said HSBC chief China economist Qu Hongbin.

Qu said for China to reach its long-term goal of matching the living standards of moderately developed economies in the West by 2035, it will need to grow by at least 4.7 per cent per year.

“This means policymakers will likely need to roll out more support to help prop up growth, which we expect to be the key focus of this year’s National People’s Congress,” he said.

The congress will run for the next week in Beijing. The debates in the legislature are kept largely confidential until the end of the meeting next Friday. The members of the congress are expected to pilot projects for resuming international tourism, renewable energy investment and the abolishment of all family planning restrictions.

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