Gerard Lyons, economist and independent non-executive director at the Bank of China, spoke to CGTN Europe about China's Two Sessions, which came to an end on Thursday. 

As China's Two Sessions comes to a close, what's really been achieved? What does it mean for the economy of China and what does it mean for the rest of us?

"Well, one of the key issues for the rest of the world was what sort of economic message would come out of the two sessions? Naturally, many people are focused on the politics, but from an economic perspective, particularly after China was hit hard in January and February by the COVID-19 virus, the key issue was what policy measures will the authorities in China outline? 

"We've already seen some fiscal easing through this year. We've seen a prudent and flexible monetary policy. But what really came out in the last week was a positive message, first in terms of the overall stance of policy – it's clearly aimed at stability. The focus on prioritizing jobs with nine million net new urban jobs highlighted. Also, the focus on boosting consumer spending and boosting incomes of those in low-income households was important and also a reiteration of the message both on the fiscal and on the monetary fronts was taken well. 

"On the fiscal front, the authorities talked about a budget deficit of 3.6 percent, although the broader budget deficit will be much higher, I calculate an over 10 percent increase this year compared with last year. And on that message, one could actually calculate that the authorities are talking about nominal GDP growth of maybe five percent in China alone for two percent inflation, that might suggest growth nearer three percent this year, although no official growth target was outlined. 

"And the final point to make was the work's message of monetary policy, I thought was very constructive. The central bank governor reiterated that it was both a prudent monetary policy, but flexible. Monetary growth has picked up quite considerably in the first four months of this year. And there was the outline of interest rate cuts and reserve requirement ratio cuts in the second half of this year. So, overall, I thought it was a positive economic message, aimed naturally at the Chinese people themselves, but also I would suggest a positive economic message for the rest of the world as well.

What concerns will the rest of the world have over the risk of the decoupling of China and the U.S. economy as tensions clearly escalate between the two superpowers? 

"One needs to differentiate here between the economics and the politics. On the politics, it's naturally very difficult in the U.S. election year to say what's new and what's part and parcel of the normal political cycle in the U.S. By that, I mean every four years in the US presidential election year, China becomes center stage, tensions with China tend to increase. That's been exacerbated this year, naturally, because of the virus and the blame game that's being played out at the moment. So I think international observers are watching to see whether it's just talk or whether this will be followed out by policy actions.

"Of course, last year, the deterioration in the trade dispute between China and the U.S. had a negative impact on global growth expectations and on financial markets. So the focus will be very much on whether the political rhetoric spills over into actual economic actions. So far it hasn't. And in terms of economic decoupling, I would actually say if one comes back to the Two Sessions in the past week, one of the interesting developments I thought that didn't really receive much international attention was the internationalization, so to speak, of parts of the new economy in China. 

"The Chinese authorities announced that they would allow foreign investment into new infrastructure areas. So, to conclude, naturally, people focus on the politics that might remain difficult in the near-term. But if one looks at the underlying economic picture, I think there's still reason to be constructive about the future relationship between China."

What would other countries do in the face of Hong Kong losing its position to special U.S. treatment following Pompeo's statement yesterday?

"Well, this is a very difficult situation, both because of the actions being announced in Beijing as well as the comments coming out of the States that have added to tensions in terms of the financial markets. And we've seen that with equity markets in East Asia, including Hong Kong being impacted, the Chinese currency itself being impacted. Markets, of course, tend to discount sometimes and overshoot, and therefore, I think there is a fear factor about the second-round effect. 

"But one thing, one would stress is that if there is any continuation of the problems in Hong Kong, then maybe Singapore will be seen as a natural beneficiary in terms of being the other major financial center in East Asia. And, of course, Shanghai itself as a financial center will start to gain in importance. But I think it's important to stress that in recent years we've had an increase in tensions within Hong Kong. They've often petered out after a while. And the question will be what happens as we look further ahead in the next few weeks? 

"But, overall, I think markets tend to actually look at the situation, trying to anticipate whether there's a second-round effect. But beyond that, one would hope that the economic situation starts to stabilize."