China is looking for ways to revive its slowing economy and save the real estate market as its annual congress meets

BEIJING – It's clear China's efforts to build confidence in its slowing economy will be high on the agenda of its ceremonial national legislature, which convenes in Beijing on Tuesday.

It remains unclear how the ruling Communist Party can achieve stronger, sustainable growth as China's workforce ages, relations with Washington are strained and housing – a key driver of the economy – is in crisis.

Hopes for a strong, consumer-driven recovery following the end of strict anti-virus controls at the end of 2022 have not been fulfilled. Local governments are mired in trillions of dollars in debt and foreign direct investment in China fell by about 80% last year.

As more than 5,000 leaders from across China gather in Beijing for the biggest political events of the year, the mood on the streets and in financial markets remains grim.

This is in contrast to the official messages as the country celebrates the 75th anniversary of the founding of the People's Republic in 1949.

“We are confident of consolidating and strengthening the recovery and growth trend of the economy,” the party newspaper People's Daily wrote in a commentary on Saturday.

“We are fully capable of transforming pressure into a driving force, accumulating advantages and converting them into winning trends, and steering the advance of the great economic ship while defying wind and waves,” it added.

For videographer Wang Tao, the question is what the leadership will do about jobs. At 41, he is struggling to find work in a job market where companies tend not to hire anyone over 35.

“At first I thought it was only difficult for older people like me, but later I found out that many young people… find it difficult to find work,” Wang said. “The general employment situation is serious.”

Congress validates decisions already made by top politicians and provides a platform to announce government plans and inform officials about what to do at home.

China's most powerful leader in decades, Xi Jinping, will preside. He has installed loyalists in top positions to strengthen the party's control over the economy and society. Xi, 70, is in his third five-year term as party general secretary and could hold the post for life.

Premier Li Qiang is expected to announce an official economic growth target when the National People's Congress meets on Tuesday at the magnificent Great Hall of the People in Beijing. State media expects it to be around 5%, in line with last year's 5.2% growth.

Many economists expect growth to slow to well below 5%. In 2022 it fell to 3%, the second lowest level since at least the 1970s.

Li's annual work report will include plans to “promote high-quality development and advance China's modernization,” the official Xinhua news agency reported.

Many in China hope this will lead to higher government spending, said Logan Wright of Rhodium Group, an independent research firm.

“Everyone will be paying attention to whether there is significant fiscal stimulus,” Wright said. But spending alone is not enough. “Now is the time to solve the short-term problems and prevent them from becoming long-term problems. “So what’s the plan?” Wright said.

The downturn in the property market followed a crackdown on excessive borrowing by property developers. Dozens have since defaulted on their debts. The largest, Country Garden, is facing liquidation proceedings. Another company, China Evergrande, is being liquidated with over $300 billion in debt.

Falling tax revenue from real estate sales also puts a strain on the financial system. To encourage more real estate lending, the central bank has cut its key interest rate for five-year loans. Many cities have relaxed previously imposed controls on real estate deals to mitigate price bubbles, and about 6,000 real estate projects have been given the green light for lending.

“The real estate market has been such an important source of growth in China, and now it has gone into reverse,” Wright said, but noted that there are signs the market is stabilizing. “If you look at how China is responding to this, it suggests a slower slowdown than the official data suggests.”

The problems were compounded by the shocks of the pandemic, as anti-virus controls led to weeks of closures in some cities and factories faced huge backlogs. Instead of pushing up prices, China is now trying to stave off a potentially debilitating deflationary cycle or chronically falling prices.

Exports, another key growth driver, fell in 2023 for the first time in seven years, even as the U.S. economy continued to defy forecasts that it would slip into recession.

Despite official indications that China's years-long anti-monopoly and data security crackdown on tech companies is over, entrepreneurs are nervous. Many small businesses are complaining about being unable to collect the bills they owe, and bankruptcies have skyrocketed.

Meanwhile, global companies have shifted investments to countries such as India and Vietnam to minimize risks from China-U.S. political tensions and the party's tighter domestic controls, and in some cases conducted raids on foreign companies' Chinese offices.

“The system is not that transparent and the lack of transparency creates a lot of uncertainty,” said James Zimmerman, a lawyer and former head of the American Chamber of Commerce in Beijing. This is particularly true when it comes to national security issues, he said, where simply conducting due diligence research can result in people being sent to prison.

Xi's talks with President Joe Biden and U.S. business leaders at a regional summit in San Francisco in September conveyed the message that “China is open for business,” Zimmerman said, “but there was nothing in his presentation that went into specifics about what what it’s about.” Reform and what kind of changes will take place to provide people with a certain level of comfort.”

These challenges come at a time of transition.

China's workforce has been shrinking for over a decade, putting pressure on an economy that still relies on labor-intensive industries. As housing prices fall and stock prices fluctuate, even middle-class families are scrimping rather than spending.

“Purchasing power is worse than before, probably because we didn't make money during the pandemic,” said Jiang Yingjie, a salesman in Beijing.

One strategy would be to put more national wealth into workers' pockets, said Michael Pettis, a leading expert on the Chinese economy and a professor at Peking University.

“The problem in China has been the same for ten years… and that is that domestic demand, driven by consumption, is very weak,” he said. At the same time, excessive construction investments lead to falling returns.

“So this year is really a year of them trying to redress those imbalances. They want to increase consumption. But that is very difficult because it involves a significant redistribution of income,” Pettis said.

Fears that China might try to export its way out of its troubles are already raising alarms in the United States and Europe, as Chinese banks increase lending to manufacturers of electric vehicles, solar panels and many other industrial products. The topic already plays a major role in the talks between Beijing and Washington.

“If you keep producing more and not consuming it, then you need trade surpluses to absorb it,” Pettis said.

Some Chinese communities are trying a different approach, creating affordable housing programs that invest in unoccupied housing. Such a move can address growing inequality and free up more revenue for spending.

“I think it has to be a combination of short-term and longer-term measures,” said Louis Kuijs, chief Asia-Pacific economist at S&P Global. “I think anything that can be done to stimulate the economy will be helpful.”

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Associated Press video producer Wayne Zhang contributed to this story.