December: end of year conclaves reprise policy mantras
Risk management mantras dominated the December policy reviews. At the 16 December Central Economic Work Conference officials stressed the need to restrain real estate bubbles: ‘houses are for living in, not speculation’. Downplaying growth, they focused, as ever, on decapacity in the coal and steel sectors. The Central Rural Work Conference, a few days later, warned again on the imperative to resolve gridlocks in land ownership and grain pricing. They sounded again the note of high quality, environmentally friendly production.
Responding to Trump’s claim the US might not be bound by the One China policy, Global Times thundered that the policy was no negotiating chip; ‘non-peaceful’ measures to achieve reunification must now be considered.
China officially launched a WTO dispute against the US and EU for continuing to use ‘surrogate country’ methodology for anti-dumping measures after the ‘market economy status’ clause in China’s accession agreement to the WTO expired 11 December.
Regulators increased efforts to rein in shadow banking, targeting off-balance sheet transactions and wealth management products. Concerned about speculation, the insurance regulator is to revise policies on related–party transactions and equity management for insurance firms. To curb capital outflows from RMB depreciation against the USD, restrictions increased on outward direct investments, bank card transactions overseas, and offshore RMB loans.
A new overall plan for renewables and a series of related 5-year plans continue to push ‘ecological civilisation’. Heilongjiang banned planting, processing and selling GMOs from 1 May 2017, a move experts denounced as poorly informed and illegal. Ministry of Land and Resources finally stepped in to ban Wenzhou from charging fees on automatic renewals of urban land usage rights, foreshadowing a national-level policy on the controversial issue.
Poverty alleviation will attempt greater east–west collaboration, with rich areas paired to help poorer ones. Pensioners will be the first to benefit from interregional health insurance portability, with a full nationwide rollout on the horizon. Supreme People's Court banned the common practice of sacking scoring-lowest employees in performance reviews, curbing business 'flexibility' to make up for the absence of labour unions.
Cyber censorship is intensifying before the 2017 Party Congress. Declaring its 2016 crackdown on piracy and pornography a success, the state launched a massive campaign to clean up the internet as a whole, while another focused on cyber fraud.
China Policy arts series
happy holidays! compliments of China Policy
What will 2017 bring? As a diversion from possible worries ahead, we continue our holiday series and delve into contemporary Chinese culture. This year we have engaged Timothy Coghlan, PRC fashion industry specialist, to update you on ‘what’s in’ on the local scene.
Download the full presentation here best dressed: contemporary Chinese fashion
october policy movers
policy professionals in and out of the establishment
Guan Qingyou 管清友 | Minsheng Securities chief economist
Guan’s macroeconomic insights have influenced policy at PBoC, NDRC and CSRC, where he is an advisor. He was the first to systematically define the concepts behind ‘Likonomics’, named after premier Li 李克强, and ‘Pinormal’, to describe president Xi’s 习近平 ‘new normal’. Predicting 6.7 percent GDP growth in 2017, Guan argues the Central Economic Work Conference sets China on a path of tighter monetary policy and more proactive and effective fiscal policy. Exchange rate policy will become more important as the central government tries to stabilise expectations for the RMB, he says. The government will promote private bank participation, he predicts, to break up state banks’ monopoly. Fiscal reform will likely accelerate, he adds, noting the work conference called for an overall central–local revenue distribution plan and local government tax system.
Qin Haiyan 秦海岩 | China Wind Energy Association Secretary
A 20-year renewable energy veteran, Qin is a top expert, taking part in drafting the Renewable Energy Law among other major regulations and standards. Government needs to set out more concrete execution and implementation measures to address curtailment issues, warns Qin, requiring focus to move from the macro to micro level. Frequent wind power feed-in tariff reductions will, he warns, harm state credibility and lower investment confidence. Setting up a marketised mechanism to subsidise the industry, such as green certificates, reduce subsidy pressures without lowering the feed-in tariff.
Han Jun 韩俊 | Central Rural Work Leading Group Office deputy director and Central Leading Group for Finance and Economics Office deputy director
With the retirement of Chen Xiwen 陈锡文, Han is now the most influential policymaker in the ag sector. He stays close to the research community and indeed to the land, often reflecting field research in his writings. Rural policies are often grouped into those concerning people, governance and agriculture, and Han often argues from the perspective of the first. He continues to call for better protection of farmers’ interests in land reform, asking for a clear legal definition of rural collective economic organisations, and controls on excessive land expansion. Recognising the price distortions in domestic grain markets, he supports decoupling subsidies and price support.
policy ticker highlights
gems from our feed of policy releases and domestic debate
trade and industry
five trillion-RMB pillars among strategic emerging industries
Xinhua | 19 december
Strategic emerging industry development organically combines key technology breakthroughs with newly rising social demands, putting China in a strong position to compete internationally under the new normal, says Xue Lan 薛澜 Tsinghua University School of Public Policy and Management dean, commenting on State Council’s recently issued ‘5-year plan for strategic emerging industry development’.
The plan, released on 19 December 2016, aims by 2020 for
strategic emerging industries’ added value to account for 15 percent of GDP, compared to eight percent in 2015
five ‘trillion-RMB’ new pillar industries, developing next generation IT, high-end manufacturing, bio-industry, green and low carbon, and digital creativity
over one million annual employment growth
The five new pillar industries show exciting potential, making it natural for the government to support them, notes Jiang Jiang 姜江 Academy of Macroeconomic Research. Innovation, inclusion and openness are the three key factors for strategic emerging industry growth, adds Xue, highlighting
innovation is central to development
more inclusive government supervision provides a better environment for growth
opening up allows international markets and technological development to spur growth
society
poor understanding of rural land ownership structures among peasants
Caixin | 14 december
An overwhelming majority of peasants do not understand rural land ownership structures, finds a report by Renmin University research centre for land policy. Among the 1,870 rural households surveyed across all provinces, 37.4 percent believe rural land is owned by the state, 32.7 percent believe it is owned by peasants, 1.9 percent think it belongs to local governments, and 8.5 percent are unsure, says the report. Only 19.5 percent correctly answered that it is owned by village collective economic organisations.
Peasants also hold divergent beliefs on whether rural land management and contract rights are property rights or membership rights, it says, leading to disagreements on the merit of rural land reform policies. Other key findings of the report include
45.7 percent of peasants under 30 believe land is owned by the state, compared to 35.8 percent of peasants over 50
29.2 percent oppose land rights reform, compared to 45.6 who support it
66.2 percent believe peasants should give up land rights after settling in cities, whereas 27.8 believe they should not; their beliefs are tied to income levels, with those with higher incomes more likely to support giving up land rights
among those whose lands have been officially confirmed, only 61.5 percent have signed confirmation certificates, with women’s land rights less protected than men’s
47.2 percent believe the compensation rates for land acquisition are too low
37.3 percent say their villages have land managed by corporate entities, whereas 60.7 percent report no corporate presence in their villages
65.5 percent of peasants who have transferred their land management rights have signed formal contracts
finance
tax bureau strikes back on corporate tax burden
Xinhua | 23 december
State Administration of Taxation (SAT) struck back at charges of a ‘throttling’ corporate tax burden, calling such terms ‘superficial’ and ‘misleading’. From 2012-15, the tax revenue-to-GDP ratio was a mere 18.5 percent, SAT claims in its latest defensive article, referencing IMF data, comparing this with 25.9 percent in developed countries in 2013.
Responding, Li Weiguang 李炜光 Tianjin University of Finance and Economics fiscal professor, argues
profit is more representative than business revenue, and should replace it as the basis for calculating corporate tax
with skin in the game, companies have the most right to say if tax rates are too high
VAT fails to alleviate corporate burdens: manufacturers are unable to pass them on through deductibles
The recent debate was triggered by Li’s research, concluding that the overall corporate tax rate amounts to nearly 40 percent. The report follows the much-publicised decision of Cao Dewang 曹德旺 Fuyao Glass Industry Group chair to move his business operations to the US to take advantage of lower taxes.
governance
courts to have stronger say in property disputes
Supreme People's Court| 30 november
The legal system has been negligent on protecting private property for years, admits He Xiaorong 贺小荣 Supreme People’s Court (SPC) judicial reform office chief, and the recent central document is about addressing this issue comprehensively. The judiciary has an indispensable role to play here, He says, with ‘a stronger say in arbitrating property disputes’. It is a long-time goal of legal advocates and the judiciary for disputes over property ownership not to be settled until the court makes a decision, says He, which would bolster the standing of the judiciary.
geopolitics
China's strategy in Trump-led world
Aisixiang | 5 december
A weakening US and West will undoubtedly bring strategic and diplomatic opportunities, finds Shi Yinhong 时殷弘 Renmin University School of International Studies professor, but the pressure and harm it can potentially inflict on the economic and financial fronts, the current top priorities, will far outweigh the benefits.
If President-elect Trump carries through his promises on ‘America First’ and revitalises US economy to the point that its ‘raw strength’ ‘becomes great again’, argues Shi, China will lose its position as the fastest growing economy, the foundation for its international clout. Even in strategic and military terms, Shi cautions, Trump may act like Republicans who believe in ‘raw strength’ in dealing with the defense budget and global military advantage.
In this changing face of global affairs where globalisation and its positive economic effects are increasingly derided, China must proceed cautiously in its active military and economic pursuits overseas, Shi notes. It must ensure that it has something to fall back on and keep its domestic growth, reforms and economic situation in mind, says Shi. Otherwise, Shi warns, China faces the risk of being overstretched.
agriculture
experts protest Heilongjiang's GMO ban
The Paper | 20 december
Heilongjiang’s ban on GMO planting, processing and selling provoked heated reactions among experts.
The ban is tantamount to local protectionism and will backfire, says Huang Dafang 黄大昉 CAAS. The province is overstepping its legislative authority and bypassing Food Safety Law, argues an unnamed legal expert interviewed by The Paper.
The ban, Jiang Tao 姜韬 CAS says, reveals a lack of scientific and management knowledge among Heilongjiang’s officials. Assessing a GM product’s safety takes more than three years and costs US$150 million on average, requiring the participation of many laboratories across different disciplines, with checks and balances to ensure there are no vested interests affecting the process, he says.
Heilongjiang holds a conservative attitude towards GM products, Huang says, because the province suffers from competition with imported genetically modified soybeans. As Heilongjiang is seeking to develop high value-added green food, it should not exclude GM crops with significant economic and ecological benefits, he argues.
lexicon
short, graphic explanations of trending technical terms and jargon
River Chief system 河长制Hé zhǎng zhì
River pollution control, previously a notorious subject of buck-passing, is now the responsibility of ‘River Chiefs’, public officials designated at specific levels of the administrative hierarchy. In December 2016, the CCP Central Committee and State Council jointly issued ‘Opinions on promoting the River Chief system’, with all localities and departments required to implement conscientiously.
china policy in the media
mentions of our work elsewhere
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down on the farm
CKGSB Knowledge Winter 2016 | 1 december
'Agriculture has very much been sacrificed to advance the urban areas, factories and industry,' says Erlend Ek, agriculture and marine manager at China Policy, a Beijing-based research and advisory company. The fundamentals are striking: In 2013, 86% of farms in China were only 1.6 acres, a tiny fraction of the size of the average 441-acre US industrialized farm.
Trump boosts Xi’s bid to stay beyond 2022
Asia Times | 7 december
David Kelly, research director at the Beijing-based consulting firm China Policy, wonders why Xi would take on so much risk for a third and even fourth term in power. Such a naked attempt at further power grab would jeopardize not only his own political standing and safety, but the country as well, he said.
China province bans GMO crops for five years
Financial Times | 22 december
Erlend Ek, an agriculture researcher at Beijing-based consultancy China Policy, said: 'Heilongjiang is particularly important for gaining trust because they would like to protect its advantage as a producer of non-GMO soyabean for the domestic and international market.' China permits the import of GMO soybeans for use in animal feed. The ban 'is mainly about protecting local produce and comparative advantage' in response to increasing imports from the US and other countries, Mr Ek added.
el ejércuto Chino saca músculo ante Donald Trump
En Mayúscula | 27 december
El desarrollo armamentístico chino aún no impresiona a Washington, que dispone de una decena de portaaviones en servicio y de una red de bases navales repartidas en todo el mundo, dice David Kelly, del centro de investigación China Policy, con sede en Pekín. Para China, que no tiene bases en otros continentes, un portaaviones es, sobre todo, un gesto 'simbólico y de consumo interno', observa el investigador. 'Esto apenas tiene importancia estratégica (...) pero le recuerda a Estados Unidos que China tiene una herramienta de presión en la región'.
innovation, made in China: inventiveness within limits
The Australian | 27 december
Australian David Kelly, research director at advisory firm China Policy and a visiting professor at Beijing University, says the system inherited from Stalin and Mao was unfriendly to science, not least because they had denounced Einstein, quantum physics, DNA, 'and even the classical logic that underpinned the rise of information technology and digitalisation'. The very concept of technological 'disruption' sounds terrible to a state that prizes stability above all. China began, Kelly says, from a civilisational base that advantaged science in certain ways. But its more recent Marxist base makes it difficult for it to build on that base.
China flexes military muscle before Trump takes office
AFP | 28 december
Beijing has a long way to go before it can claim military superiority over Taiwan's main protector Washington, which has 10 aircraft carriers in service and a network of naval bases all around the globe, said David Kelly, research director of Beijing-based consulting firm China Policy. For China, the presence of the Liaoning is above all 'symbolic' and aimed at its 'domestic audience', Kelly said.
Beijing mayor promises house prices will not rise in 2017
Financial Times | 29 december
The mayor’s pronouncement leaves the city government steering a narrow course between price rises and much-dreaded falls. 'The government’s bottom line is that they cannot let prices fall too much,' said Wang Xinling, lead analyst at China Policy, a research consultancy in Beijing. 'Falls of over 5 per cent [over a year] would be seen by policymakers as having a big psychological impact on property owners.'
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