August: central-local fiscal rebalancing
It was puzzling that the leadership did not make more of significant ‘Guiding opinions’ on central-local fiscal relations, which re-centralise many expenditure responsibilities like environmental impact assessments. 5-year plans continue thick and fast, with MIIT releasing two: a sci-tech plan to transform industry through innovation, and one to internationalise SMEs. CBRC’s new P2P regulations put platforms on the backfoot. PBoC blamed divergent M1 and M2 growth on anything but a liquidity trap. Shandong’s ocean granary plan aims to shore up food security.
State Council recognised the legality of ride-hailing apps, but localities are already exploiting loopholes to block the services in their areas; the Didi-Uber merger will come under anti-monopoly scrutiny. Debate re-emerged on how best to abolish the payroll system in hospitals, key to reducing patient costs and increasing care quality. Domestic NGO rules increase Party control.
The public eventually accepted the disappointing medal haul at the Rio Olympics. Already high following the UNCLOS decision, anti-foreign sentiment was further inflamed by accusations of Chinese athletes’ drug use; but it also seems to have cooled. Beijing issued near-explicit threats to South Korea for installing THAAD at the beginning of August, but by the end joined them in condemning the latest DPRK missile launch. Constructive, if awkward, meetings with Aung San Suu Kyi, and proxy talks with the Philippines, show willingness to come to the international table. Perhaps Beijing is clearing the air before the G20 Summit in Hangzhou 4-5 September, where it will look to further reset relations.
featured analysis
shadow boxing: curbing risky growth
CBRC circulated draft controls on commercial banks’ wealth management products for comment in late July 2016. More ambitious than the abandoned December 2014 proposals, they show a shift in priority from spurring growth to controlling risk. full post open access →
policy movers
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1. Frequently commenting on income distribution, I call for a more equitable structure, sharing the fruits of reform more widely.
A former MoHRSS Salary & Allowances Division deputy director, I argue abolishing the payroll quota system for public universities and hospitals does not mean complete marketisation. The state will continue to support their social service functions, I say, while helping them to cut service fees, lowering consumers’ financial burdens. Financial allocation to universities and hospitals should, in my opinion, be adjusted annually according to performance evaluations.
2. Government finance expert and State Council advisor, I lament there have been many documents since the Third Plenum, but little action.
The budgetary process should play a central role in public governance, I argue, requiring legislative oversight of government finance and central-local balance. Bucking the trend, I call for more fiscal resources for localities, with the centre playing a supportive role, despite the conversation on public governance favouring more centralisation. If Beijing continues to drain money from local governments, as it did in the VAT reforms, I warn that localities will gradually shrink into irrelevance, with central government unable to fill the role.
3. Known for my tough stance on anti-monopoly policy, many hope I will implement market-based reforms and revitalise private investment.
Transferred from NDRC Department of Price Supervision to Fixed Asset Investment in May 2015, I advocate enacting the Concession Law promptly, Investors would better understand returns, I argue, if public services created transparent pricing mechanisms.
finance
more revenue, less responsibility for localities
By end 2016, central agencies will clarify central-local expenditure responsibilities and launch re-centralisation pilots, before devolving many taxes locally, in the most significant fiscal shift since 1994.
full signal client access →
mid august position:
Shanxi coal firms get a break
end august position:
P2P rules leave platforms playing catchup
geopolitics
mid august position:
season of ‘psychological sanctions’
end august position:
after the frenzy, turning outward again
society
mid august position:
de-bureaucratising hospitals and universities
end august position:
less state, more Party for NGOs
agriculture
mid august position:
protein power
end august position:
safeguarding future food
trade and industry
formulas for success
A new infant milk formula regime, coming into force 1 January 2018, opens for registration on 1 October 2016, as Food Safety Law ramps up. full signal client access →
mid august position:
planning for technology to transform industry
end august position:
dreams of Northeastern rejuvenation
governance
mid august position:
Youth League diminished
end august position:
‘modest’ fiscal recentralisation
policy ticker highlights
global taobao will break trade barriers
National Business Daily | 2 August
After the G20 summit in Hangzhou in September 2016, Alibaba plans to begin negotiations with one or two countries to set up a global e-commerce platform, first proposed by Jack Ma 马云 in March 2016.
ideology poor guide to economics: Zheng Yongnian
Aisixiang | 17 august
Current setbacks in economic problem-solving, finds Zheng Yongnian 郑永年 Singapore East Asian Institute think tank director, arise from ideological rigidity and the political situation.
integrate ‘three plots of land’ reforms to limit excessive requisition
Thinktank | 17 august
The government should combine new rural land requisition policies with those on construction and homestead land transfers, says Cai Jiming 蔡继明 Tsinghua University Centre for Political Economy director.
ready for inevitable GMO industrialisation
Yidianxixun | 22 august
With its inclusion in State Council’s ‘13th 5-year sci-tech innovation plan’ China finally chooses GMO industrialisation, pressured by forced and innovation-driven developments, says Huang Dafang 黄大昉 Chinese Academy of Agricultural Sciences Biotechnology Research Institute.
Beijing to underwrite more public services
State Council | 24 august
Forces in China’s social and economic development are increasing the value of a rural hukou, argues Zhang Xiaode 张孝德 Chinese Academy of Governance.
majority of P2P platforms do not meet new regulations
Economic Information Daily | 25 august
Online lending regulations released on 17 August 2016 show regulators want P2P lending to contribute to a more inclusive financial system, conducting smaller transactions to better serve consumers, says Hu Hong 胡宏 PPDai CEO.
in the media
Policy Development and Growth Threatened
Australian Financial Review | 8 august
...'licenced policy contention' exists for broad economic and social policy, and issues that don't directly affect the Party's power. Philippa Jones said: 'Money flows in substantial quantities to the policy community in universities and think tanks who continue to debate and comment on policy as it develops.' Jones says the number of interested parties giving advice has often been a natural check and balance to government. The Party also uses extensive polling to keep in tune with public sentiment.
China may not have enough arable land to feed its people. But big changes are coming
Time Magazine | 18 august
It’s a revolution with serious risks for the legitimacy of the CCP should food prices soar and farmers struggle to make ends meet. 'There could be massive social unrest if they screw up the agriculture industry,' says Erlend Ek, an agriculture expert at the China Policy research firm. 'There hasn’t been this big of a change maybe since the Great Leap Forward.'
quiz answers:
1. Su Hainan 苏海南 | China Association for Labour Study vice president
2. Wang Yongjun 王雍君 | Central University of Finance and Economics
3. Xu Kunlin 许昆林 | NDRC Fixed Asset Investment Department director and NDRC deputy secretary general
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