China's ‘Two Sessions’ to focus on economy, US tariffs, and military spending

China’s leadership is gathering at the largest political event of the year on Tuesday, seeking a response to US President Donald Trump’s latest salvo of tariffs targeting an already sluggish Chinese economy.

The closed-door meetings, known as the “Two Sessions”, are concurrent gatherings of China’s rubber-stamp parliament and a separate political advisory body.

Voting is tightly controlled and legislation is pre-approved by the Communist Party.

But the political gathering will offer a rare glimpse into how Beijing plans to meet its economic growth target – which analysts say would likely be five percent, while it faces down an unpredictable United States.

With the opening of the proceedings coinciding with the implementation of additional US tariffs, the meetings will be closely watched for retaliatory measures, which Beijing has vowed to impose.

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All eyes will also be on possible stimulus to boost domestic demand, sorely needed to counter a potential drop in tariff-sensitive exports.

Economy in focus

Proceedings kick off Tuesday at 3:00 pm (0700 GMT) with the opening ceremony of China’s People’s Political Consultative Conference (CPPCC) – likely attended by President Xi Jinping and other party top brass.

Tuesday’s CPPCC is low-stakes compared to the near-simultaneous gathering of the country’s legislature, the National People’s Congress (NPC), which starts Wednesday.

During the NPC’s opening session, Premier Li Qiang will deliver a speech expected to unveil economic targets.

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Analysts polled by AFP broadly agreed that Beijing will set a goal of around five percent growth – the same as 2024.

But observers say this is ambitious given the economic headwinds China is facing.

Analysts expect policymakers to widen the scope of a consumer goods trade-in programme initiated last year that allows shoppers to exchange older home appliances and other items.

China is also grappling with a prolonged property sector crisis and high youth unemployment, issues that have dampened confidence in the economy – which long enjoyed double-digit growth but has struggled to make a full recovery since the pandemic.

Investors will also be watching for signs of further support for the private sector, following Xi’s rare talks with Chinese tech tycoons last month.

Officials will try to send a positive message that the country is “still in good shape”, said Alfred Wu, an associate professor at the Lee Kuan Yew School of Public Policy in Singapore.

However, specific policies may not be announced during the meetings, with impact to the markets likely “limited”, he said.

“In the past, the NPC meeting was more about agenda-setting. Now, it’s more about sending a message and propaganda,” Wu added.

“Now, it’s one-man politics.”

Trump’s back

The talks will be closely watched for signals for how China plans to deal with an increasingly unpredictable United States, its largest trading partner and strategic rival.

Donald Trump, in just over a month back in the White House, has overturned the international order and proven even more mercurial than in his first term.

“People will be watching (for) how Xi might be responding to the uncertainties and unpredictability set before him by the challenge that is the current Trump administration,” said Chong Ja Ian, an associate professor of political science at the National University of Singapore.

China has so far been “quite careful” and calibrated in their reaction to the US’ latest tariffs, Chong said.

“I expect then that any response will be intended to show PRC resolve, but to avoid escalation, because once there’s escalation, it is unclear how it might be able to be controlled.”

Pressure from Trump could motivate Beijing to strengthen the kinds of support for the economy seen last year – interest rate cuts, easing local government debt pressure and expanding subsidy programmes for household goods,

“We expect China to increase policy support in response to greater external shock from the US,” Wang Tao, chief China economist at UBS, told AFP.

Military moves

China is also set to announce its annual military budget this week.

Analysts expect an increase as Beijing navigates deepening tensions in the South China Sea and the Taiwan Strait.

“I expect further investment in capability, especially in terms of missiles, aircraft, artificial intelligence that boost the military,” said Chong.

For years, China’s defence budget has expanded at a faster rate than its economic growth target.

And on the political side, focus would be on the military’s role within the legislature, given Xi’s wide-ranging campaign against official corruption since coming to power just over a decade ago.

“There will probably be some attention to who might be moving up the ranks within the CCP, given the fact that its current leadership is ageing,” Chong said.