July: border troubles
South Korea moved to deploy the US’s THAAD anti-ballistic missile system, and the UNCLOS tribunal supported the Philippines against China in the South China Sea. Beijing moved to ease rising tensions, removing a missile battery from a disputed island. But populist rhetoric, rising over previous months, reflected a darker theme: to resist ‘national humiliation’. US and Japanese products were destroyed, and McDonald’s and KFC outlets vandalised, showing popular belief that these states are the real instigators of the Philippine’s UNCLOS case.
State media suggested Li Keqiang 李克强 had signed on to Xi’s directive for bigger and stronger SOEs after the premier's call for leaner and meaner firms seemed to put the two at odds in June. Diverging M1 and M2 growth figures cast doubt on monetary policy’s effectiveness; commentators warn policy uncertainty has created a liquidity trap. Xi used the latest session of the Central Leading Group for Deepening Reform to press reform’s urgency. Credit, nonetheless, continues to flow into ‘zombie’ SOE Dongbei Special Steel, despite several defaults. Calls for freezing Liaoning’s borrowing capacity to force the firm to declare bankruptcy have so far gone unheeded.
A draft preamble, heavily criticised, threw the 2020 timetable for the Civil Code into question. Ministry of Agriculture issued standards to regulate transfer markets for land-use rights, hoping to support development of moderate-scale agriculture. COFCO swallowed Chinatex, increasing the grain giant’s importance to food security. A working committee for critical information infrastructure protection was formed, signalling increased concern about cyber attacks on industrial systems. Ministry of Human Resources and Social Security announced that a plan to increase the retirement age will be issued before end 2016, with some calling for a ‘ladies first’ approach.
featured analysis
some universities more equal than others
Ministry of Education (MoE) deleted hundreds of documents related to existing ‘world-class’ university programs from its website on 23 June 2016, sparking rumours that the next stage of ‘world-class 2.0’ policy is imminent. full post open access →
policy movers
can't put a name to the face? go to page footer
1. Serving as PBoC Finance Research Institute director since 2015, I made a series of proposals to assist debt disposals, including swapping expensive medium- to long-term bank loans for bond debt, for both private and state-owned enterprises.
Focusing on the maturity mismatch between bank loans and infrastructure investments, I propose the government should use tax incentives to encourage long-term pension savings, which would be invested in infrastructure projects. Enterprises’ debts should be swapped into preferred equity, I think, to free banks from overseeing the day-to-day operations of firms, while keeping rights to claim their investments in case of bankruptcy.
2. An industrial economist, I work on industrial policy and structural transformation.
A vice minister, I coordinate the daily work of Liu Yandong 刘延东 second vice premier, who heads leading groups in science and technology, and pharmaceutical and healthcare system reform. I also oversee work at MoT on integrating transport logistics. Previously State Council Development Research Office vice director following 15 years at CASS, I holds vice directorships at the State Council Women and Children Work Committee and CASS International Investment Research Centre.
3. Ideological whip in my previous role as Central Party School vice president, unlike previous leaders of MoE, I have no academic credentials.
Formely Chinese Academy of Governance Party secretary, which trains civil servants, I was chosen to replace Yuan Guiren 袁贵仁 at the end of June 2016. In my first inspection tour of Beijing’s top universities, I was quick to express support for ‘world-class 2.0’ and higher education reform, but my surprise appointment is a sign that strengthening the role of ideology in education is paramount.
finance
debt swaps go local
Debt-for-equity swaps between banks and struggling SOEs have been shelved, following strong resistance. Government will seek to address spiraling corporate debt with other measures, with a swap conducted between two local SOEs in Gansu a promising example.
full signal client access →
mid july position:
IPO backlog grows to 895 firms
end july position:
monetary policy losing traction
geopolitics
mid july position:
South China Sea arbitration reverberations
end july position:
more aftershocks from South China Sea and THAAD
society
mid july position:
shifting hospital business models
end july position:
community focus for aged care pilots
agriculture
end july position:
regulating land operation rights transfer markets
trade and industry
dirty business: soil pollution action plan
The soil pollution action plan is a risk management approach to deal with polluted land as cheaply as possible. Cost, however, could still prove prohibitive, and the plan lacks details on financing and clear standards for remediation. full signal client access →
mid july position:
pushing innovation in batteries
end july position:
securing the internet of things
governance
mid july position:
Civil Code 2020 timeline called into question
end july position:
rule-bending for reformers: but how?
policy ticker highlights
strategic emerging industries catalogue
NDRC | 5 july
The ‘Guiding catalogue for key products and services for strategic emerging industries (2016 edition)’ was released on 5 July 2016.
set a USD/RMB exchange rate floor of 6.70 for intervention
Caixin | 12 july
The current offshore USD/RMB exchange rate of 6.70 and onshore exchange rate of 6.68-6.89 is a good indication of the Chinese currency’s future value, contends Zhou Hao 周浩 Commerzbank.
prosecutors urged to be lenient toward innovators
SPP | 15 july
Prosecutors should grasp the subtleties of innovation and appreciate why entrepreneurs might cross legal lines, explains the Supreme People’s Procuratorate (SPP) in a 15-point document.
value of rural hukou increasing
People's Daily | 21 july
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.
university and public hospital personnel systems focus of reform
Guangming Daily | 29 july
De-bureaucratising universities and public hospitals is the main focus of the second stage of public institution reform, says Li Zhong 李忠 MoHRSS. The public payroll quota system for service organisations like universities and hospitals will be replaced by a marketised contract system, says Li.
THAAD risks Northeast Asian peace
People's Daily | 29 july
Deploying the THAAD anti-missile system provides South Korea scant protection from North Korean nuclear weapons or missiles, warns CPC mouthpiece Zhong Sheng in People’s Daily.
selected texts of the month (clients only)
finance
markets should decide whether firms qualify for debt restructuring
debt disposals must be paired with deep SOE and financial system reforms
trade and industry
society
lexicon
tolling of the bell 钟声 zhōng shēng
A pen-name used to signify that an article, normally in the People’s Daily, represents the views of the central CCP. Whether composed by a Party writing group or by a staff writer, the viewpoint should have been approved at all levels. Literally describing the sound of a tolling bell, the name frequently takes an admonishing tone on international issues, and has been used recently for pronouncements over the South China Sea.
world class 2.0 双一流 shuāng yīliú
A higher education development scheme to create world-class universities and disciplines. It marks a shift from the 985 and 211 world-class university projects that channeled funds to a small number of elite universities. Announced by State Council in late 2015, combining and opening up 985 and 211 funding to more universities would make higher education funding more competitive and equal. Other plans include training more high-quality faculty, enhancing research and innovation capability, and linking academic progress and industry. The policy’s label, shuang yiliu, literally means ‘double world class’ where campuses and disciplines form the ‘double’.
in the media
China’s Charitable Turn?
Foreign Affairs | 10 july
China’s new law on foreign nongovernmental organizations, passed in late April, will regulate how such groups operate for the first time in the country’s history. When the Overseas NGO Management Law goes into effect in January 2017, nearly 10,000 groups in China will have to register with the Chinese police and find domestic groups willing to partner with them. Some will not be able to stay in the country; others will voluntarily depart rather than try to navigate the stricter rules.
Beijing Grapples With PR Crisis After S. China Sea Ruling
Voice of America | 14 july
"Chinese authorities now face a major propaganda challenge within the country," said David Kelly, research director of the Beijing-based advisory group China Policy, adding, "The public knew the tribunal would not find in China's favor, but after the Duterte election, followed by the U.S. dispatch of carrier groups into the region, the official response swung from resignation to outrage, allowing the populist temperature to rise."
quiz answers:
1. Yao Yudong 姚余栋 | PBoC Finance Research Institute director
2. Jiang Xiaojuan 江小涓 | State Council vice secretary general
3. Chen Baosheng 陈宝生 | Ministry of Education minister
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