April: COVID-19 dealing with the aftermath
Uncompromising epidemic control contended with resumption of work this month. As lockdowns gradually ease, concern shifts to asymptomatic cases and local outbreaks, such as one in Harbin. With the poor and vulnerable suffering most, the state now seeks to ease their access to social security and jobs. Non-state education and healthcare units are also being supported, both sectors having been deprived of revenue in Q1.
Recasting itself as leading a global anti-epidemic fight, Beijing is running into backlash. ‘Mask diplomacy’, sending medical gear around the world, was hit by a wave of faulty products. Quality control was tightened but criticism persists, including from fellow south-south partners (Brazil, Iran). A debt crisis was reported along the BRI, notably in Africa.
At home, officials are on notice to ensure ‘progress through stability’: attaining 'Xi decade' targets (eliminating poverty and getting to moderate prosperity), and pushing reform, are not to be forgotten. Local governance remains contentious, as officials and constituents persist in drawing lessons from the epidemic about minimum levels of transparency and citizen participation.
Politburo and People’s Bank of China messaging signal more top-down policy support. Fiscal spending will go up, directed to both old and ‘new’ infrastructure. The macro leverage rate is also headed up. Long-term changes are flagged by Central Committee and State Council diktats urging marketisation.
As worries rise over global shortages, panic buying and export restrictions by neighbouring states are impacting the food supply. Leaders attempt to calm fears: emphasising high self-sufficiency in staple grains and food reserves as hedges against market volatility. But reliance on imports of some crops, not least soybeans, may yet cause trouble.
Havoc spread by the collapsing oil price was immediate: the plunge struck producers, but may benefit importers. It hopefully speeds transition to cleaner sources set out in the draft Energy Law issued this month. Renewables will be prioritised, although 'reasonable' and greener growth of fossil fuel energy will be allowed.
Innovation, including in energy, should be boosted by pilots announced this month granting full or long-term ownership to state researchers. This may lead to a local version of the US Bayh-Dole Act, guiding licensing of inventions generated by state-funded research.
State data will be further opened to the public, and data rights, collection and trade are to be better regulated. Flaws in the law are in play: more apps are found to have violated privacy protections.
april policy movers
policy professionals in and out of the establishment
Zheng Zhijie 郑志杰 | Peking University School of Public Health Department of Global Health chair
Epidemiologist Zheng has worked for the US National Institute of Health and CDC, joining a WHO expert team dispatched to China in the SARS outbreak. Lack of global coordination and awareness were, he laments, major factors in the current pandemic. A second outbreak in China remains possible, he warns; tracking cases would minimise the threat. Underfunded public health and poor training of frontline medicos also concern him. MoE should turn more grad school places over to public health, as well as improve pay and career development for public health professionals.
Ma Jun 马骏 | PBoC Monetary Policy Committee
COVID-19, makes GDP growth targets beside the point this year, contends Ma. With the US and Europe hit hard, little is in China’s control. Diverting resources, even a reduced target, would ‘hijack long-term macroeconomic policy.' Winning respect in both private and public sectors, Ma has been chief economist for Deutsche Bank’s Greater China operations and the PBoC, and co-chair of G20 Green Finance Research Group.
Wu Kongming 吴孔明 | Chinese Academy of Agricultural Sciences vice dean
A leading entomologist researching pests and crop protection, Wu sounded an early alarm on resurgent fall armyworm. Understanding the ecological and bio-safety advantages of GMOs, he urges reducing pesticide overuse, while raising yields, by commercialising pest-resistant GM crops. Fall armyworm, his team found in May 2019, can be curbed by a pest-resistant GM corn species (developed by Dabeinong) that earned biosafety certification from MARA in January 2020.
policy ticker highlights
gems from our feed of policy releases and domestic debate
global impact
PRC embassy slams Brazilian education minister over ‘anti-China remarks’
CCTV | 7 April
context: Brazil-China ties have been strained since the COVID-19 outbreak. Education Minister Abraham Weintraub suggested the pandemic was linked to Beijing’s ‘plan for world domination’. Health Minister Luiz Henrique Mandetta complained Brazil’s orders of ventilators and other vital health supplies from China had been cancelled without explanation. President Jair Bolsonaro’s son Eduardo has criticised the Chinese ‘dictatorship’ for its handling of the outbreak and has used the phrase ‘Chinese virus’.
On 5 Apr 2020, a spokesman for the Chinese embassy to Brazil issued a statement in reaction to Brazilian Education Minister Abraham Weintraub’s public vilification of China on social media.
On 5 April, Weintraub publicly vilified China on social media for
linking the origin of COVID-19 to China
making premeditated remarks that were absurd, shameful and racist
having ulterior motives
having a negative impact on Sino-Brazilian relations
China then voiced strong indignation and resolute opposition, pointing out
no country can meet the global challenge on its own
international anti-epidemic cooperation is the priority
WHO and international community oppose linking the virus to any specific nation
we urge the few individuals who have done so to correct their mistakes, stop their baseless attacks on China
several Brazilian media personnel and politicians have made irresponsible remarks on China
China’s consul-general in Rio de Janeiro Li Yang has mounted counterattacks by publishing two articles in mainstream Brazilian media
governance
editorial advises officials to ‘seek progress in stability’
People's Daily | 21 April
context: This authoritative essay is meant to convey to Party committees at all levels that consensus prevails in the political leadership that reform trumps retrenchment.
A People's Daily front-page editorial states that economic development faces unprecedented challenges and, with volatility and uncertainty significantly increasing, officials must
fully estimate difficulties, risks and uncertainties
effectively enhance a sense of urgency
focus on all aspects of economic and social development
make long-term ideological and work plans for dealing with changes in the external environment
adhere to a general tone of 'seeking progress in stability'
‘Seeking progress in stability’ is described as an important principle of Party governance and a means of doing economic work well. Stability and progress reinforce each other. 'Only on the basis of stability can we keep forging ahead and meet our goals', the editorial advises. It further asserts economic development and social stability will ensure the decisive task of overcoming poverty is completed and a moderately prosperous society is built in an all-round way.
macroeconomy
‘infrastructure maniac’ back to work, private players invited
21st Century Business Herald (1), 21st Century Business Herald (2) | 4 April
context: Chinese netizens nicknamed the country an 'infrastructure maniac' as state-led infrastructure investment was the hallmark of post-2008 economic stimulus. Facing mounting slowdown pressures, infrastructure construction is back again, along with the drive to resume production. Debt-ridden local governments are hoping to attract private money this time around. However, the private economy is also struggling to survive in this adverse economic situation.
Given 24.5 percent y-o-y decline in January-February fixed asset investment, according to National Bureau of Statistics, Ming Ming 明明 CITIC Securities expects infrastructure to be the primary driver of growth stabilisation after the epidemic subsides.
Top policymakers mentioned 'new infrastructure' four times in 20 days, according to 21st Century Business Herald. Fujian, Guangdong, Zhejiang, Jiangsu, Anhui and Hainan have all launched 'new infrastructure' project databases and special policies. Actual investment data in these localities is also improving, though at relatively low levels, adds 21st Century Business Herald. Meanwhile, Wind data company shows new special-purpose bond offerings were C¥1.08 tn as of 31 Mar 2020, 84 percent of the advanced quota.
Ren Zeping 任泽平 Evergrande hails 'new infrastructure' as a perfect connection of short-term demand stimulus and long-term effective supply, key to China's high-quality development. Guan Qingyou 管清友 Rushi Financial Research Institute says a 1 percentage point increase in infrastructure translates to 0.1 percent GDP growth; to achieve 5-6 percent development target, infrastructure growth should reach 10 percent.
Significantly, private enterprises are contributing to 'new infrastructure' construction. In 537 key projects in Zhejiang, 402 have private investment. 73 private enterprises are involved in 130 projects in Jiangsu. Liu Wei 刘伟 PCI Tech CEO says many private companies master core technologies and abundant capital, complementing the state's effort to boost new infrastructure. However, Liu also admits that many private companies face financing difficulties and high costs and are in a weak position; he calls for dismantling the glass ceiling and truly incentivising private participation.
agriculture
MARA reassures national food security to curb panic buying
Ministry of Agriculture, China Grain, 21st Century Business Herald | 7 April
context: COVID-19 may cause global food shortages as panic buying and export restrictions hit supply and circulation. Chinese officials have confirmed the state’s ability to shield consumers from food crisis on several occasions. However, the reliance on imports of certain crops, such as soybeans, may send food prices soaring and add uncertainty to domestic markets.
Rumours of a coming food shortage have swirled for weeks, leading to panic buying in some regions, rapidly pushing up prices of rice, wheat, corn, and soybean. At a 4 Apr 2020 press conference, Wei Baigang 魏百刚 MARA (Ministry of Agriculture and Rural Affairs) Department of Development Planning director said that national food security is under control, presenting key data including
grain production has remained above 650 million tonnes for five consecutive years
over 470 kg per capita grain availability, higher than the 400 kg world average
grain stock/consumption ratio higher than the suggested 17-18 percent
wheat and rice stocks sufficient to support domestic consumption for a year
small amount of grain imports, totaling 14.68 million tonnes, accounting for 2 percent of total domestic consumption
Complemented by policy reserves and private inventory, the national and local grain reserves are the cornerstone of the state’s food security, said Qin Yuyun 秦玉云 SGAR (State Grain and Reserves Administration) Department of Grain Reserves director. The national grain reserve has not been released since the COVID-19 outbreak.
The possibility does exist that the pandemic will hurt soybean imports, particularly in the second half of 2020 when US soybean production might be reduced due to quarantine measures, predicts Liu Xuezhi 刘学智 Bank of Communications Financial Research Centre senior analyst.
society
providing social security for low income groups
National Business Daily, Caixin | 31 March
context: As COVID-19 recedes, the economic impact on individuals is starting to show. Beginning with unemployment, a vicious cycle is being created that could drag more people into poverty. Only government assistance can arrest the fall.
A State Council executive meeting on 31 Mar 2020 emphasised the urgency of assisting low income groups, reports National Business Daily. Temporary price subsidies will be doubled, as well as expanding their scope to orphans, de facto uncared for children and qualified unemployed people. The policy will benefit more than 67 million people.
Patients who recovered from COVID-19 and Hubei people are hardest hit, reports Caixin. Many of them are still required to self-quarantine and cannot resume work. Without unemployment insurance, migrant workers stuck at home have no income and cannot pay for their children’s education. Agriculture also took a blow, as many are still concerned about food from Hubei. Many products can only be sold at very low prices. Although central authorities have asked to create safety nets for people in trouble, Caixin notes that implementation is far from sufficient.
Many experts have called for directly distributing cash to low income groups. Gan Li 甘犁 Southwest University of Finance and Economics China Family Finance Survey and Research Centre director says the scope of the current social assistance system benefits is not large enough. He suggests that people not enjoying individual tax cuts and earning less than C¥60,000 per year should receive a one-time subsidy equal to a proportion of their education, healthcare, housing and aged care spending. According to estimates, 167 million people will qualify, and if the proportion is set at 10 percent, each person will receive a subsidy of C¥1,620. Special-purpose bonds could be used to pay for the subsidy, and it will increase consumption by C¥400 bn.
energy and environment
draft Energy Law accords priority to renewable energy
National Energy Administration | 10 April
context: The Energy Law is the nation's first governing the energy sector. It has been 13 years since the first draft. The absence of such a fundamental law has long impeded reforms; the roll-out of many overarching and strategic decisions has depended heavily on inter-departmental coordination.
National Energy Administration issued draft Energy Law on 10 Apr 2020. It stipulates
energy exploration and development should be consistent with ecological civilisation
reforming energy consumption, supply, technology and institutions; strengthening international cooperation
setting up a low-carbon, safe and efficient energy system
optimsing energy industry and consumption structures
increasing the share of non-fossil sources: prioritising renewable energy; developing nuclear in a safe and efficient manner
monitoring the share of non-fossil fuel energy annually
dividing the national renewable target into provincial ones, the implementation of which will be assessed annually
setting up renewable energy generation and consumption guarantee mechanisms
releasing fiscal, financial and price support measures
ensuring priority grid access for renewable energy
promoting reasonable development of fossil fuel energy
promoting clean and efficient coal development and use
speeding up offshore oil and gas development; encouraging unconventional oil and gas
developing distributed energy based on local conditions
replacing fossil with non-fossil fuel energy, high-carbon with low-carbon
strengthening energy security via
improving energy reserves and peak-shaving facilities
enhancing supply and emergency response capacity
boosting cyber and information security
ensuring fair access to grids and oil and gas pipelines
implementing demand-side management
priortising renewable energy and conservation products in government procurement
building market structures and institutions conducive to competition; forming market-based pricing institutions in competitive areas
promoting energy conservation and efficient development and use
strengthening climate mitigation and response capacity building in energy industry
energy planning consists of overarching sectoral and regional plans
overarching plans should be drafted by NEA and reviewed by NDRC
revamping energy taxes to encourage conservation, reasonable development and the growth of non-fossil sources
promoting technological innovation
in key areas including
resource exploration and development, processing, transportation, clean and integrated use
conservation and pollution reduction
supporting innovation platforms
encouraging international collaboration
importing clean and high-quality energy, advanced technology
strengthening supervision of import and export of fossil fuels and energy-intensive products
obligations
science and innovation
largest IC Big Fund recipient catches up on foreign competition
Caixin | 13 April
context: Launched in 2014, IC Big Fund aims to break foreign dominance in this key sector. The fund’s phase 2, worth C¥200 bn and meant to attract C¥1 tn in co-investment, began earmarking funds for high-end gear and new materials in March 2020. Yangtze Memory is the flagship project, with astronomical investments starting to pay off.
China's first 128-layer 3D NAND memory chip was revealed on 13 Apr 2020, reports Caixin. The announcement beat industry expectations, says the report, given the short 4-year history of its producer. Tsinghua Unigroup's Yangtze Memory aims to mass-produce the new chips in H2 2020, but unnamed industry insiders told Caixin production quality needs to improve first. That puts Yangtze Memory about one year behind international competitors, says the report. In June 2019, Korea's SK Hynix announced the mass-production of similar chips, as well as R&D for its next-gen 176-layer products. Other developers such as Samsung and Micron followed shortly after.
Set up in 2016 with a US$24 bn budget, Yangtze Memory received the largest single investment from the IC big fund (US$12 bn), along with support from the Wuhan government, reports Caixin (Note: Big Fund will sustain investments during phase 2). COVID-19 had a limited impact, as the Wuhan-based firm did not cease production even at the height of the citywide lockdown, said Simon Yang Shining 杨士宁 Yangtze Memory CEO in early April.
Yangtze Memory's sales will be boosted by the US chip ban, Caixin anticipates. The firm will ramp up production to grab five percent of the global NAND market, predicted Tianfeng Securities in March 2020.
China Policy is a Beijing-based research and advisory company. Supporting our clients at multiple levels, from in-house research teams to CEOs and boards, we help them anticipate, understand and respond to China’s changing domestic policy and geopolitical environment. Contact us for more information on our services.