June: blowing bubbles
Long-term aspirations to induce structural economic change were again overshadowed, if not undermined, by drastic meddling in markets. Momentum, meanwhile, continues to build behind energy transition and environmental protection.
After silence on a top-down SOE reform plan since March 2014, two plans reaffirm Party influence over corporate governance and guard against loss of state assets, apparently jettisoning Third Plenum market reform goals. Targeted stimulus to spur fixed-asset investment and broad stimulus to rescue sagging markets are old tricks, though halting IPOs in train takes intervention to new extremes. At least innovation reform now has a detailed timetable; financial reform lurched forward with certificate of deposit sales authorised and steep deposit-to-loan ratios on notice.
China's international commitment ahead of Paris is backed by a projected five-fold increase in environmental protection spending during the 13th 5-year plan, and a green light for prosecutors to initiate public interest litigation. Xi Jinping's 习近平 mid-month trip to Guizhou points to future policy hopes: technology, vocational education and rural entrepreneurship to lift the West out of poverty where roads, bridges and malls could not before.
What should have been the trial of the century was tucked away on the back burner. Xi's enigmatic treatment of Zhou Yongkang 周永康, fallen security czar and deadly threat to his power, has left the public fascinated.
featured story
anyone for ‘valuism’?
A rising power representing a quarter of the world’s people, China faces a dilemma: it desires to list certain universal values on its international calling card, while steering its citizens’ hearts and minds to embrace a top-down, prescribed set of values. full post open access →
policy movers
can't put a name to the face? go to page footer
1. Tipped to replace PBoC governor Zhou Xiaochuan 周小川, I was rated a bold financial reformer in my previous position as CSRC director.
In my current post I am pursuing a range of reforms I hope will revitalise Shandong, now beset with SOE monopolies, rust belt industries and pollution. Turning the provincial capital Jinan into a financial centre and the port city of Qingdao into a Free Trade Zone are key reforms. Urbanisation is to be promoted through county upgrades and public housing for migrants. My personal trademark is most obviously seen in Shandong’s provincial Social Security Fund Council; aiming high to attract other provinces’ pension funds and possibly become a regional pooler of funds.
2. I was NDRC deputy director for 10 years, in charge of energy and environmental affairs, before being appointed China’s special representative on climate change affairs, the highest ranking official for international climate negotiation.
In 2005 I was forced to resign as State Environment Minister over handling of the Jilin Plant explosions and subsequent Songhua River pollution. Nevertheless, my 20-years-plus service to the State saw me become the NDRC deputy director one year later. As China’s chief climate negotiator, I will push for a binding global climate deal in Paris this December, pressing developed countries to deliver their committed emission cuts, as well as promised funding to the developing world.
3. Daughter to a former premier who was best known for his vanity project—the Three Gorges Dam—in the 1990s, I am a high profile member of the ‘princeling’ class.
Enjoying a fast-track rise through the energy industry thanks to my father’s influence, I was deeply involved in the industry’s restructuring throughout the nineties and noughties. I was assigned to China Power International Development (HK) in 1994 to attract investment in the domestic industry, and have since been promoted to Chairwoman in 2008 as well as holding top positions in China Power Investment Group (CPIC)—its parent company. Despite my adamant denial of misconduct and corruption in my family, I have recently been removed from CPIC via a merger and reassigned (demoted) to be China Datang Corporation deputy CEO.
governance and law
new normal: full of contradictions and problems
'China collapse' theories that obsess the West, claims the official media 24 June, are a conspiracy against China. The CCP views issues 'dialectically', Xi Jinping 习近平 reiterated in Guizhou last week. This means treating the world as linked and developing. The Chinese economy, he added, is entering a 'new normal' full of contradictions and problems.
geopolitics: back to the HK basic law; problems of nationalism and populism; risky assumptions about Belt and Road full post client access →
end june: anti-monopoly rumbles again
Anti-monopoly agencies are revving up after the Qualcomm case, early 2015. Following SAIC’s April regulation, NDRC is drafting anti-monopoly guidelines for IPR abuse, redrawing the line between innovation and enforcement. China is about to get tough on the license fees domestic firms pay to foreign patent-holders. Qualcomm-type cases will become the norm, argues Liu Jian 刘健; non-practicing entities, especially, will need to be on their guard. Enforcement, he concedes, may have been patchy, but it will no longer be so. full post client access →
streamline state-owned farms to rival global giants?
To eliminate last vestiges of Mao-era collective farming and shift to an enterprise-based market-driven model. Responsibility for social services (including police and courts) will pass from the enterprise to local state institutions. Consolidating and increasing scale and efficiency of nongken farms and firms, the aim is to make them globally competitive. full post client access →
Zhou Yongkang deal done: anti-corruption burnt out?
It was a week marked by an absence of fanfare in two momentous developments. Making page one of official media on Friday, both the Zhou Yongkang 周永康 verdict and Aung San Suu Kyi’s meeting with Xi Jinping 习近平 were nevertheless muted in tone. Elsewhere, the Zhou verdict was read as drawing a line under Xi’s drive against corruption; his reception of Aung San Suu Kyi as facing down bureaucratic and factional obstruction.
geopolitics: Belt and Road projects must be commercially viable; ROK FTA bright spot for ag? full post client access →
economy
expanding consumer finance to increase spending power
10 june: State Council session extends license approval for consumer financing companies from 16 pilot cities to the nation as a whole; approvals are devolved to provincial level. Expanding lower income groups’ access to credit aims to increase the share of consumption in economic growth. full post client access →
stable growth nosing past anti-corruption
The weekend saw ‘urgent instructions’ to localities around the country to roll out measures to ‘maintain stability’, not in the regular sense of stern crackdowns on dissent, but of investment-driven growth policies, (upgrading grain storage facilities and other rural infrastructure) in other words more mini-stimulus. This, rather than reform or anti-corruption, is currently at the top of the policy agenda.
geopolitics: benefits of strategic ties with small countries; empathy needed in China’s overseas dealings; playing a double act with the US full post client access →
could TPP be a China reform option?
As drafting of the 13th 5-year plan gets into gear, debate is also stepping up over the relative priority of reform vs. GDP targets. A slowing economy is sidelining reform: curbs on corporate debt, recently imposed, have now been loosened.
geopolitics: NGOs not the enemy; US-China softening full post client access →
Made in China 2025: more haste, less speed
First ten-year phase in a three-part grand plan to achieve manufacturing powerhouse status by 2049; PRC founding centenary. Aiming to rival the US ‘Industrial Internet’ and the German ‘Industrie 4.0’, the blueprint similarly aims to achieve smart manufacturing by integrating the Internet of Things, automation, robotics and cloud computing. full post client access →
energy and environment
mid june: nuclear regains favour
nuclear industry poised for growth and policy favour: with 27 nuclear power units under construction at home, China has signed contracts or is discussing cooperation with 20 countries including Argentina, Egypt, and the UK. full post client access →
geopolitics
Shangri-la dialogue cools South China Sea tensions
Opening in Singapore in a frenzy of editorials, US planes flying over South China Sea atolls, and intimations of stock market losses; the Shangri-La Dialogue (29-31 May 2015), an annual summit on Asia security, closed with mutual calls for restraint, and a drop in nationalist sentiment in China’s official media. Overshadowed by this theatre, Singaporean Prime Minister Lee Hsien Loong’s keynote warning of ISIS threats to the region may be of longer-term significance.
geopolitics: US pivot overestimates China’s intentions; what Modi did not say in China; straight talking would be a better diplomatic language full post client access →
policy ticker
tax sharing for relocated industry in Beijing-Tianjin-Hebei cluster
MoF | 24 june
MoF has issued a tax sharing policy that will help reduce local level resistance to industrial relocation in the new Beijing-Tianjin-Hebei cluster.
SOE reform U-turn
Financial Times Chinese | 24 june
The latest SOE reform guidelines—to strengthen Party leadership and state-owed asset supervision in SOEs—are a complete reversal of the direction adopted since the 1993 Third Plenum, argues Weng Yi 翁一.
expansionary monetary policy not reaching real economy: Xu Gao 徐高
Economic Observer | 23 june
PBoC's expansionary monetary policy has yet to affect supply-side factors, finds Xu Gao 徐高 Everbright Securities chief economist.
Li Keqiang 李克强 backs nuclear going global
State Council | 16 june
Now that China has developed a global reputation in high-speed rail technology, claims Li Keqiang 李克强, China's HL1000 nuclear power technology must achieve superlative safety standards and cost performance to become internationally competitive.
China is ready for the Paris climate summit: Li Keqiang 李克强
State Council | 12 june
Following a meeting of the State Council Leading Group for Climate Change and Energy Conservation, Li Keqiang 李克强 announced China’s Intended Nationally Determined Contributions (INDCs) for December’s Paris climate summit.
selected texts of the month (clients only)
economy
expanding consumer finance pilots aim to promote steady consumption growth
exploring the significance of large international agribusinesses
energy investment along the Belt and Road: projects must pay off
green development the only way forward for economic civilisation
geopolitics
let’s do a double act: a resolution to the South China Sea crisis
Modi in China: listen to what he said, ponder what he left unsaid
what makes China’s foreign policy language so hard to understand?
governance and law
energy and environment
lexicon
the ‘three rurals’ 三农 sānnóng
The policy sector comprising agriculture, the countryside and the peasantry; introduced in the 1990s to modify one-sided concern with agricultural production. In the cartoon, the farmer hails the ‘policy’ sun, which radiates ‘concern for agriculture’, ‘supporting the countryside’ and ‘protecting the peasantry’.
nongken system 农垦系统 nóngkěn xìtǒng
The nongken system consists of 1,785 state-owned farms in 34 relatively poor regions of 31 provinces. In total they occupy about 5 percent of arable land and sustain 13.5 million people. More than 3,000 SOEs holding over C¥750 bn in assets provide associated agricultural processing, distribution, and sales services. The nongken system is no longer sustainable. Farms are small, and ill-equipped to manage modern agricultural production, trade and distribution systems. They are weighed down by social provision responsibilities, unspecified and unsupervised state-owned assets, and are poorly run.
in the media
What’s Next for China’s Anti-Corruption Drive?
Voice of America | 17 june
China Policy’s David Kelly says the trial and the outcome looks to many people like a folding up of the anti-corruption campaign. 'The heat is off. The political drama that was escalating of resistance to any more of the higher level purges,' he said. 'The political side of the campaign is ebbing, but on the other hand some more public moves will be made.'
quiz answers:
1. Guo Shuqing 郭树清 Shandong Province governor
2. Xie Zhenhua 解振华 NDRC Climate Change Special Representative
3. Li Xiaolin 李小琳 China Power International Development CEO
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