january 2024: what will the 2024 budget hold?
month in focus
Warm welcome all…
As flagged in December, more real estate easing has come online, and developers have the green light to borrow against maturing debt.
Beijing is stepping up incentives to attract FDI and promote trade. Meanwhile, it is taking out insurance by pushing forward plans to align domestic and international manufacturing standards—unfinished business after WTO accession. The PRC economy grew on the back of new access to global markets. Could this new round of alignment provide Beijing with a belated double dividend from WTO accession? Plans afoot see domestic standards, testing and certification making more PRC goods attractive to global markets.
If you missed the December month in focus—it was all about the work meetings setting the agenda for 2024.
Happy Lunar New Year everyone
Philippa
Before the Lunar New Year holiday mode takes over in February, January is a time for finalising details in preparation for the upcoming Two Sessions in early March. Annual plans and the national budgets should now be heading to print.
What to expect? Despite the official 5.2 percent GDP growth in 2023, the PRC is not out of the deflationary woods. PBoC flagged a larger-than-expected reserve ratio rate cut on 24 January, with C¥1 tn in liquidity to be released for bank credit and long-term investment. The cut announced at a midday press conference rather than an online post, underscores the desire to turn the economic narrative.
Local government finances remain under pressure as localities nationwide publish investment plans focused on scaling up strategic emerging industries. Twelve provinces have meanwhile been ordered to halt non-essential investment projects.
New measures for real estate finance seek to coordinate finance at the city level, offering developers new operating credit, now available to use against maturing debt, as well as on completed projects, many of which remain unsold.
The measures threw the sector a timely lifeline as it faces a liquidity crunch: Evergrande, once the PRC’s largest developer, was ordered to liquidate by a Hong Kong court. Other developers are feared to follow soon.
2023 trade data paint a grim picture: exports declined 4.6 percent, a first fall in seven years. Declining international demand further threatens economic stability in 2024, warns Su Jian 苏剑 Peking University China Centre for Economic Research. Against faltering external demand and geopolitical adversity, a PRC expert urges ‘more structural and political thinking in global value chains’.
More trade support measures, such as boosting domestic consumption and aligning domestic and international standards are, pledges Beijing, in the works. A 2024 adjustment plan lowers import tariffs on goods ‘of benefit to’ the PRC economy, e.g. certain medicines, raw materials and intermediate goods. MofCOM issued new Opinions to assist processing trade, pledging support in finance and logistics for value-added upgrades and bonded repairs of ships, planes and similar equipment.
Ties with trade partners are to be reinforced. Beijing promises visa-free entry for Swiss citizens and announced that talks will be launched to upgrade FTA (free trade agreement) relations with Switzerland. FTA negotiations with ASEAN 3.0, Honduras, Peru, Gulf states, New Zealand and South Korea feature in MofCOM’s busy 2024 schedule. It notified new support for Fujian exploring cooperation pilots with Taiwan, not least in ‘advantageous’ industries, a carrot-and-stick approach.
With foreign investment falling in 2023, attracting it back is on the agenda. Recent measures include
47 FTZs (free trade zones) success stories promoted to the rest of the country
reform plan for new Pudong Area 2023-27, expanding market access in commerce and developing scitech innovation
market access for certain high-tech goods in Guangzhou Nansha
easing of visas for business, study or tourism visitors
To underpin the open-for-business narrative, the courts are improving safeguards for trade and investment. Rules are being set up on applying international treaties, and practices in civil and commercial trials with international elements.
Mainland–HK reciprocal recognition and enforcement of judgments in civil and commercial cases came into force in late January. Some 90 percent of judgments will be covered. Hong Kong’s reputation as a centre for resolving trade disputes and other legal issues will be affected.
Fostering 'future industries' is now a major initiative. The emphasis is on those, e.g. quantum computing, where a global leader has yet to emerge. On a Hubei inspection trip, Premier Li Qiang 李强 repeated a longstanding plea for more concerted application of scitech innovations in industry. A State Council executive meeting spoke of the importance of AI for industrial upgrading.
Beijing municipality seeks to enhance its status as a global scitech hub. Pledging easier cross-border use of funds, flow of research data and recognition of qualifications, it hopes to attract international talent; whether such marginal enhancements can offset geopolitical headwinds (Canada has limited R&D cooperation with PRC research institutes) remains uncertain.
Some key 2023 energy data has emerged, indicating that investment in clean energy continues its remarkable growth, with renewable power generation rising 34 percent y-o-y. Buoyed by the rise of the ‘three new products’ (NEVs, lithium batteries and solar PV), clean energy was vital for economic growth in 2023. A new major oil field in Henan was discovered, hailed as a breakthrough in domestic oil exploration.
In the domestic power markets, green power deals rose over 100 percent y-o-y. In its 'Supervision Work Points for 2024', NEA (the National Energy Administration) highlights the emergence of three regional trading markets (Beijing–Tianjin–Hebei, Yangtze River Delta, central and southern China). Spot power markets in Guangdong and Shanxi have officially moved on from being pilots and are now officially set up. Other pilot markets are expected to follow soon.
To make the grid more flexible, NDRC issued new guiding opinions on V2G (vehicle-to-grid) interaction and smart charging of EVs. ‘V2G tech’ sees EVs charge and store energy from the grid at lower cost in demand troughs, discharging back to the grid in peaks. The PRC’s EV fleet is hoped to form a crucial part of electrochemical energy storage, the opinions read, providing a flexible demand buffer to the grid and consuming more renewables.
The ag sector’s guiding strategy will not change in 2024, confirmed MARA (Ministry of Agriculture and Rural Affairs). Expanding grain acreage and yield will remain priorities―expected to deliver 650 million tonnes of annual output, if not even more. Following this resolution, the Food Security Law, passed late December 2023, maintains the unpopular policy of ‘strengthening farmland use control’ (uprooting cash crops), albeit in a softer tone.
GMOs and gene-edited crops, now with clear paths to commercial production, provide hope for higher yields. Newly-approved varieties include GM corn, soybeans, and a gene-edited soybean that can be grown from the northeast to southern China. This supports increasing soybean acreage, potentially at the cost of ‘non-strategic’ cash crops–i.e. those that bring in much-needed income for farmers.
Advanced via integrated ecosystem protection, carbon reduction, and pollution control, ‘Beautiful China’ will be high on the 2024 environmental policy agenda, as foreshadowed in the annual National Environmental Work Conference.
Yet economic recovery and weather impacts will erode pollution reduction efforts, admits Huang Ruanqiu 黄润秋 MEE (Ministry of Ecology and Environment) minister. Relaunch of the voluntary carbon market trading scheme (CCER, paused in 2017), is hoped to boost projects seeking to offset or capture carbon.
Growing the ‘silver economy’ (aged care) and industries to service it, will be a performance indicator in 2024. Proposals to improve quality paediatric services and timely mental health assessments emerged in January.
Meanwhile, opinions on building compact medical and health communities appeared, displaying the usual commitment to reducing rural/urban inequities in access to medical care. For all the COVID lockdown dramas of 2022, Shanghai remains a medical innovation hub: ideas for a ‘National Biomedical Industry Innovation Shanghai Pilot Zone’ and ‘Comprehensive Reform Pilot Program in Pudong New Area’ recently dropped to help the biopharma sector breakthrough global bottlenecks, and engage in flexible pricing mechanisms.
As the winter holiday nears for students at all levels, there is a focus on tutoring activities that typically keep students busy over the vacation. MoE (Ministry of Education) urges greater oversight of off-campus training, including strict checks on tutoring practices. Meanwhile, state-supported after-school services are subject to MoE cautions. These involve limiting academic workloads and forbidding extraneous fee charges, in line with the rollout of the 'double reduction' policy.
Of possibly more significant long-term impact have been gradual mergers of Party and President's Offices on tertiary campuses, forming single ‘Party Admin Offices’. Offering some degree of downsizing and streamlining, the shift also speaks to a general background of ideological rearmament in Xi Jinping’s New Era.
With 2024 as a US election year, Beijing can only wait with bated breath. This is all the more reason to focus on countering US influence in the Middle East, ASEAN, and the South China Sea. President Xi outlined a vision of deeper cooperation with Arab countries in a virtual keynote to the 2nd China-Arab States Summit on 5 January; on 19 January, Iran signed a comprehensive strategic partnership agreement with the PRC. The question remains: can Beijing credibly speak across the Sunni/Shia divide? Xi received credentials of interim Taliban ambassador Asadullah Bilal Karim on 30 January, a first major official recognition. Recent Iran-Afghanistan conflict, though not sectarian, points to Beijing’s difficulty treading an even path in the Middle East. PRC thinktanks have, for instance, been fence-sitting on the Houthi attacks on shipping in the Red Sea, which appears no more advantageous for the PRC than for the US.
Attending the ASEAN Foreign Ministers' Meeting and a summit in Cambodia, FM Wang Yi promoted Xi’s regional cooperation vision, offering reassurance on the South China Sea dispute. Meanwhile, following agreements signed with Vietnam by visiting Philippines President Marcos 31January, Global Times disparaged proposed ‘ASEAN minilateralism’as a series of anti-China ‘cliques’. Beijing had already on 20 January dismissed a 'minilateral-looking' US, Japan, India, and Australia statement urging resolution of the Taiwan issue.
