Warm welcome all…
The big policy milestone, the Two Sessions, has come and gone. As we expected, the Sessions reiterated policy directions consistent with the glorious aspirations of Xi Jinping’s New Era. Positioning the PRC to become a dominant scitech power continues—with school education now getting extra central funds. Consumption still seems stuck on the back burner; Beijing is, nonetheless, nodding in its direction with new support coming from PBoC. We are not holding our wallets ready…
Happy reading
Philippa
To start with some better economic news: National Bureau of Statistics figures published 31 March 2024 paint the brightest picture for manufacturing in over a year: the purchasing managers index rose 2.4 percentage points m-o-m to 50.8, the first expansion in the sector since October 2023. New orders and exports were firm.
Industry innovation under the label 'new productive forces' was flagged as the primary task for 2024 by Li Qiang 李强 in his Two Sessions GWR (Government Work Report) in early March. The central budget speaks to this, with C¥371 bn allocated to scitech, up 10 percent, and C¥165 bn to education, up 5 percent. Amid the rush to embrace 'new productive forces,' official op-eds quickly cautioned against the frenzy, warning localities to align with their economic realities and not sideline traditional industries.
The GWR flagged modest fiscal restructuring. Spending responsibility will now be more centralised. Spending in the two central budgets (‘general’ and ‘funds’) is set to rise by 8 percent as the centre takes on more responsibilities. Proceeds of newly issued multi-year bonds are to be spent on strategic projects, ramping up the centre’s share of total sovereign debt, yet claimed by a chorus of experts to lower systemic risk.
Bolstering investment funds remains imperative, with Li Qiang in the GWR further, ‘urging development of venture and equity investment, and improving industry funds’ function’.
Flipside of the direct financing coin, capital markets were targeted by four 'Opinions' from securities regulators, upgrading roles of investment banks and the quality of listed firms. The centre is heeding calls for ‘world-class’ investment institutions, remarked Tian Xuan 田轩 Tsinghua People's Bank of China School of Finance.
Consumption seems firmly planted on the back burner. In the works for months, A new PBoC re-lending tool has been created to support the program, setting aside C¥500 bn to back bank loans. But without more specifically allocated funds, it may be difficult to reach the centre’s goals.
On the global stage, a PRC vessel was reportedly attacked by Houthi forces in the Red Sea, as experts in Shanghai had predicted. Foreign Minister Wang Yi visited Australia; and heavy tariffs were at long last lifted from Australian wine imports. The PRC continued to struggle with its perceived support for Russia in the Ukraine war, and with Iran and Hamas in Israel.
A major press conference on foreign policy, part of the Two Sessions in early March, heard FM Wang Yi talk up mutually beneficial cooperation with the EU, whose labelling of the PRC a ‘partner, competitor, and systemic rival’ resembled, he quipped, red, yellow and green lights shining all at once at a traffic crossing.
Recent BRICS expansion reflected the collective rise of the Global South: the PRC anticipates a brilliant 'Southern moment' in global governance, he noted. Acknowledging improved PRC–US relations since the Xi-Biden summit in San Francisco, he did not neglect to criticise unilateral US sanctions on the PRC, reaching, in his words, 'an unimaginable extent'.
In a keynote speech later in March at the annual Boao Forum for Asia (PRC version of the Davos World Economic Forum), Zhao Leji 赵乐际 NPC head added heat, calling the US hegemonic, its bullying behaviour 'deeply harmful'.
Meeting with the World Bank president and IMF managing director, Premier Li Qiang meanwhile urged closer cooperation with both organisations.
Beijing’s trade agenda at the Two Sessions reiterated commitment to ‘institutional opening’ to attract foreign players, as ever pledging more equitable and predictable rules. Intermediate goods (electronics, auto parts, steel, wood, glass, chemicals etc), green and services trade are eyed as new growth areas.
Trade growth rebounded in Jan-Feb 2024, with exports and imports rising 7.1 and 3.5 percent y-o-y respectively. 2023’s low base, price cuts and weak RMB likely drove the export surge. MofCOM’s minister warned of a ‘very challenging’ year to come for trade.
Bidding yet again to rewarm foreign investment, the State Council pledged to give foreign firms wider business scope, above all in finance and scitech. Their concerns are to be addressed, not least in data flows, standard-setting and unfair treatment. Enacting the plan, agencies and regions are urged to come up with initiatives and timelines.
More measures are being rolled out in PRC special zones, including
promote high-quality development in national-level new areas
negative lists for cross-border services trade in FTZs (free trade zones)
pilot project for bonded gas bunkering in Tianjin FTZ
new catalogues for
encouraged industries in Hainan free trade port
repair business in the comprehensive bonded zones
Foreign tech firms are being courted, attracting visits from both Xi Jinping 习近平 and Premier Li Qiang 李强. Ministers pitched PRC tech capabilities as ripe with opportunities for global firms at the China Development Forum in late March.
The Cyber Administration of China has finalised new cross-border data rules, streamlining processes for multinationals. The updated rules exempt most routine cross-border data transfers from stringent security review.
The 'Safeguarding national security ordinance', legislation under Hong Kong Basic Law §23 was formally enacted in March. Beijing boasts that a complete legal framework to safeguard national security in Hong Kong is now in place. This, it claims, will favour Hong Kong's long-term prosperity and stability. The maximum penalties set under the ordinance are generally lighter and more humane than those in the UK, Canada and Australia, claims supporter Wu Yingpeng (Albert Wu) 吴英鹏 Hong Kong Foundation Chambers barrister.
Following the Two Sessions, Tang Renjian 唐仁健 MARA minister inspected provinces promoting the official rubric, ‘new productive forces’. Boosting ag machinery investment, ag tech, and seed and pig production are on his agenda. The 2024 China Seed Conference focused on innovative ag tech: seeds to raise yields, improve quality, cut fertiliser and pesticide use and minimise loss from natural disasters. With the pork sector in flux, updates are expected on rules for editing pig genes. For all the optimism in ag investment, the domestic surplus of low-grade soybeans, while imports boom, is troubling. Absent policy support, soybean prices will decline in 2024.
The latest air quality rollout plan topped the Two Sessions environment agenda alongside improved carbon accounting, verification and product footprints. Major initiatives are in the pipeline for the next biodiversity COP16 meeting in October.
Environmental data fraud, a long-standing issue, was mentioned again at a Two Sessions press conference by Huang Runqiu 黄润秋 MEE minister. Given the drive to expand the carbon market, ensuring integrity is needed for international buy-in. State-of-the-art environmental monitoring is to be deployed under several new measures. More work is however needed on enforcement.
Clean energy solutions are needed to ease challenged energy development, Xi told a Politburo study session. Some of this was echoed in 'Guiding opinions on energy work 2024', under which wind and solar power are to account for 17 percent of the total generated. Non-fossil consumption is to reach just under 19 percent. Massive new renewable capacity and a hydropower rebound should see emissions fall in 2024. But further market reform and investments in grid infrastructure are required to avoid curtailment.
The cost of supporting renewable power generation will meanwhile be more equitably shared, as per new measures for ‘fully guaranteed purchase’ of green electricity. Usually borne by grid companies, cost-sharing of such purchases among actors in the power market points to coming moves in renewable power pricing.
Uppermost among heathcare discussion at the Two Sessions were measures to support for biopharma, channelling resources to the grassroots and boosting medical services for the aged. Beijing, not just Guangdong, is now being promoted as an aspiring global innovative pharma powerhouse. Investment will be stepped up in innovative medicines, aiming to boost sales in overseas markets. Uneven distribution of medical resources, above all lack of grassroots access, is an issue to be addressed with renewed vigour.
Promoting public expenditure on education of over C¥4.2 tn in 2024, Beijing flagged its deepening commitment to the sector. To reduce disparities, support is earmarked for compulsory education, not least for the disadvantaged, county schools, and community kindergartens. NPC delegates urged more rural education investment. Serious funding was allocated to higher education and campus reforms, strengthening the R&D cause. A notable topic was building AI into PRC educational quality.