April: Li revs the reform engine
On the campaign trail for economic makeover, resilient premier Li Keqiang 李克强 stood front-and-centre for much of April. Neither his pro-innovation, anti-bureaucracy rhetoric, nor the steady reforms flowing from biweekly State Council meetings betray a political machinery jammed by gridlock. New FTZs opened, UnionPay’s monopoly broke, a new urban cluster was approved and a promised devolution leadership group was inaugurated. But Li’s pep talks and admonishments—to the flagging rust belt, to overzealous paper pushers—fail to go far enough for dedicated reformers. Inability to adjust for demographic realities means China, warns contentious finance minister Lou Jiwei 楼继伟, is fast sinking in middle income trap quicksand.
featured story
megafootball: the Chinese state tackles the people’s game
On 2 September 2009, Chinese football hit rock bottom. Second division Qingdao Hailifeng was leading Sichuan FC 3:0. Its owner had allegedly placed large bets overseas on a Qingdao win, with at least four goals scored. In the final minutes the Qingdao team tried to deliver on the bet with an own-goal. Thanks to the heroics of Hailifeng goalie Mou Pengfei 牟鹏飞, his teammates failed.
"Inured to disappointment and disgrace, China’s football fans remain resilient. Politicians are also getting in on the act: Xi Jingping 习近平 has moulded an image for himself as a football diehard, unveiling in 2011 his ‘football dream’ of China qualifying for, hosting and winning the World Cup. The bureaucracy backed up Xi’s passion with action, announcing a football reform package on 16 March 2015. full post open access →
policy movers
can't put a name to the face? go to page footer
1. I was Premier Zhu Rongji's 朱镕基 protégé and helped him enact key economic reforms during the 1990s.
But last summer I unveiled fiscal reforms that would balance expenditure with administrative responsibility, overturning Zhu's statist tax revenue sharing system. Since the NPC, my ministry has continued to issue taxes, despite a new law requiring taxes to be enacted by legislation.
2. I am president and CEO of Tencent, Shenzhen-based Internet giant, and have promoted the ‘Internet plus’ concept since late 2014.
I have successfully lobbied the government to consider it a ‘national strategy’, and take credit for proposing a new industrial structure. Jack Ma 马云 is not convinced by my plan, most likely due to the threat it brings to Alibaba.
3. I was a Deutsche Bank economist, and an oft-quoted China bull, before moving to head PBoC's research bureau Spring 2014.
I argued fiercely that PBoC should be in charge of the treasury, which it is under the Budget Law amendment. After the last reserve requirement reduction, I told the press, China's fundamental monetary conditions have changed, because the balance of payments had changed; easing reserve requirements simply kept the money supply stable.
policy updates
economy
troubleshooting trumps reform
‘Firefighter’, a title claimed by Zhu Rongji 朱镕基 and unsuccessfully sought by Wang Qishan 王岐山, is now squarely pinned to the breast of Premier Li Keqiang 李克强—but possibly at the price of the Third Plenum agenda to reduce state intervention. Lowering reserve rates fuelled speculation of further stimulus, overshadowing the launch of three new FTZs and Li’s attempts to talk up internet+. full post client access →
Midstream cluster: resuscitating central China amidst coastal slowdown
5 apr 2015: State Council approves the ‘Yangtze River Midstream urban cluster plan’. Incorporating three existing clusters, it promotes integrated development to support the Rise of Central China and Yangtze River Economic Belt. full post client access →
mixed strategies in Li Keqiang’s reappearance
The conflict between seizing reform beachheads and avoiding errors came to the fore in Li Keqiang’s 李克强 recent appearances. One day propping up SOEs and pushing for ‘old normal’ GDP targets in the northeast, the next deploring slow transition to the market (‘new normal’) in Beijing. full post client access →
China’s leaders buckle down
China’s top leaders seem distinctly unrelaxed, despite triumphs on the international stage. Faltering social services, courts and rural finances may well be edging up the agenda. Clear reform markers—toward granting local governments fiscal autonomy, marketising electricity prices, and liberalising deposit interest rates—are still the exception. full post client access →
local government debt okay
12 mar 2015: MoF outlines plan to swap C¥1 tn hidden high-interest maturing debt with longer-term lower-yield municipal bonds. A convincing first move to reduce local financial pressure in the short-term, the amount is still slight compared to overall debt. full post client access →
energy and environment
new electricity reform: marketising on the margins
25 mar 2015: Electricity reform plan aims to deregulate electricity prices for industry by setting up an alternative market outside the NDRC price-controlled system allowing producers to sell outside their given quotas. Grid companies will not be able to influence price-setting in this market. full post client access →
China’s MEP, AIIB: snakes and ladders
Environment policy continues to generate tension domestically, with the Ministry of Environmental Protection MEP caught in a never-ending game of snakes and ladders. It slid down a snake in April with the massive explosion of a paraxylene plant in Zhangzhou, Fujian, before zipping up a ladder by seemingly successfully blocking a major dam project on the Yangtze near Chongqing. full post client access →
geopolitics
China lands a slam dunk
A spectacular success for Xi, for his AIIB investment bank, and for his westward development policies, the Boao Forum for Asia paraded buy-ins by the UK and up to 40 others. It rubbed salt into the wounds of the Obama administration’s ‘strategic error’ and indicates another challenge to the international financial order posed by China. But few noticed China bending over backwards on multilateral lending norms to appeal to AIIB’s OECD candidates. full post client access →
policy ticker
Social Security Fund funding debate settles
Caixin | 30 apr
Debate over whether SOEs should help fund the National Council on Social Security Fund (NCSSF) by allocating it shares or by paying in cash from share sales appears to have settled to favour the former.
Yao Yang 姚洋: BIT negotiation with the US is a chance for reform
Consensus Online | 28 apr
Striking an optimistic tone in a speech at Peking University, economist Yao Yang 姚洋 joined fellow reform advocates in painting the high-tech industry as a strategic opportunity China can seize right now to upgrade its economy.
He Jun 贺军: China increasingly at risk in Venezuela
Caixin | 24 apr
China has no better option in Venezuela than to keep lending in exchange for oil, tying Beijing ever more closely to the survival of the current government, says He Jun 贺军 Anbound Consulting.
need to upgrade water quality standards
China Environment News | 23 apr
Fu Tao 傅涛 Tsinghua University welcomes shift in focus from reducing pollutant discharge to improving water quality.
plans for new FTZs’ specialisation published
State Council | 20 apr
State Council published general planning for Shanghai, Guangdong, Tianjin and Fujian FTZs. Each document specifies the FTZ’s range, tasks, and supporting policies. The plans were approved in late March 2015.
selected texts of the month (clients only)
governance and law
geopolitics
China should request the return of Vladivostok to revive its Northeast
SASAC encourages central government SOEs to ‘team up’ and go abroad
economy
structural issues with local debt will result in financial turmoil
interest divergence leads to changes in trade and investment interests
energy and environment
do not measure the strength of reform by whether it breaks up the grid companies
will prices rise or fall under the new electricity framework?
with grid companies kept intact, where does reform resistance lie?
lexicon
land tickets 地票 dìpiào
tradeable credits that villagers can acquire by converting residential or commercial plots into farmland. Because quota rules require a constant ratio of farmland to commercial land, developers are willing to buy land tickets so they can construct new commerical projects elsewhere. But local governments have abused land tickets in most pilots, expropriating land without adequate compensation to offset revenue shortages.
in the media
China’s levels of bureaucracy have gotten ‘ridiculous,’ Premier says
Wall Street Journal | 17 apr
Did you catch our 'hip flicks'? a fabulous slide show of modern Chinese cinema with links to the movies
quiz answers:
1. Lou Jiwei 楼继伟 Finance Minister
2. Ma Huateng 'Pony Ma' 马化腾 Tencent CEO
3. Ma Jun 马骏 PBoC Research Bureau Chief Economist
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