June: Xi focuses on NEA, stimulus, education overhaul
A hugely active month saw Xi Jinping 习近平 building ties in Russia, Central Asia, Japan and North Korea, as analysts toughened their questioning of the US Indo-Pacific strategy.
June extended the saga of US-China trade conflict, culminating in a claimed truce at the G20 Summit. Official commentary stayed cool: the nation will hold its path and run its own business well. As new sanctions on some US$60 bn of imports came into force, Ministry of Commerce (MofCOM) also announced it would issue an ‘unreliable entities list’, countering the US entity list used to restrict Huawei and ZTE.
Helping stabilise the economy amid international uncertainty, breakneck local government bond offerings continued, with an estimated C¥800 bn released in June. Surrounding regulations were relaxed, with a 10 June notice allowing bonds to be used as investment principal, with support funding from financial institutions for infrastructure projects.
The state is also acting to stimulate selected sectors. Ministry of Industry and IT issued commercial 5G licenses a year ahead of schedule, giving state-owned telcos a clear sign they need to step up efforts (and start purchasing equipment from Huawei). National Development and Reform Commission called on cities to stop limiting license plates for NEVs, aiming to bolster dwindling auto sales. The Shanghai Stock Exchange’s Tech Innovation Board, launched 13 June, will help direct capital towards innovation.
State Council discussed an ambitious Northeast China Revitalisation plan, hopefully a launchpad for Northeast Asia cross-border trade and investment through FTAs and the BRI. State Council also announced support for renovations to old urban residential areas, covering up to 42 million households with total construction area of four billion square metres, kick-starting consumption of building materials, appliances and services.
Ministry of Agriculture and Rural Affairs (MARA) called for comment on a draft revision to the Ag Product Quality and Safety Law addressing a long-standing regulatory gap between farm-side ‘agricultural product safety’ and market-side ‘food safety’. A high-level set of opinions on traceability similarly focused on inter-agency coordination, committing MARA, MofCOM, State Administration of Market Regulation and others to build a single, unified traceability platform in coming years.
Ahead of a second round of central environment inspections set to commence soon, CCP Central Committee and State Council set new rules in their latest attempt to institutionalise China's environmental mission. A leading group will be created to oversee inspection work, under which a formal inspection office will be set up to coordinate teams inspecting provinces, State Council departments and relevant central SOEs.
State Council is overhauling the education system with a range of high-level measures including the first policy providing overall guidance on high school education since 1978, stipulating new curricula and evaluation systems alongside a funding minimum of C¥1,000 per student. State Council also released a plan to split education costs between central, provincial and municipal governments, and a vocational education plan that seeks to fund skills and vocational training for at least 50 million people, with a minimum of 15 million people trained by end 2019.
june policy movers
policy professionals in and out of the establishment
Qu Dongyu 屈冬玉 | FAO director-general elect
On 23 June, Qu became the first Chinese national elected to head the UN Food and Agriculture Organisation (FAO). Before his appointment to the former Ministry of Agriculture (MoA) in 2015, Qu spent eight years as vice president of the Chinese Academy of Agricultural Sciences. He also holds a doctorate in agricultural and environmental sciences from Wageningen Agricultural University in the Netherlands. At MoA, he managed a powerful portfolio—ag international cooperation, state farms, and ag market data departments. At a sub-summit of the 2019 Belt and Road Forum, Qu committed to strengthening ag cooperation with BRI countries in trade, investment, and capacity building, and pushing forward with bilateral and south-south cooperation. MARA is willing, he asserts, to share Chinese practices and experiences in safeguarding food security, and contribute to a ‘zero-hunger’ world.
Zhang Yiqun 张依群 | China Public Budget Performance Evaluation Committee deputy director
Zhang also directs the Jilin Institute of Fiscal Sciences and serves on the Society of Public Finance of China managerial committee. While implicit debt is complex and high risk, Zhang is confident that the government is capable of addressing it properly and fostering a virtuous cycle for investment and financing. He proposes four steps for risk control: understanding scope and arrangements, classifying and preventing contagion, differentiating policies for different types of debt and borrowers, and gradual reduction by swaps and repayments. Under rising uncertainty, says Zhang, fiscal policies should facilitate macro-adjustment and coordination of market activities.
Lu Chuncong 鲁春丛 | Ministry of Industry and IT (MIIT) Information and Telecommunication Administration vice director
Lu has published on 3G maintenance, satellite communication and related strategies, and has ties with state-owned telecommunications equipment maker Datang, best known for developing Chinese 3G standards. After directing the Institute of Economic Policy at the Chinese Academy of ICT, he moved to his current position in December 2018. While it has a long way to go, said Lu on 6 June, 5G will unleash a new tech revolution: each unit of investment will create six in economic output. MIIT will promote 5G by (1) encouraging commercial use, including network construction and synergy with 4G; (2) supporting the development of applications, especially for the industrial internet, the internet of vehicles, modern agriculture, smart energy, education, healthcare and elderly care; (3) creating a healthy environment, with collaboration between domestic and international firms, knowledge sharing, security safeguards, standards and R&D funding.
policy ticker highlights
gems from our feed of policy releases and domestic debate
geopolitics
BRI must transcend exploitative development models
AiSixiang | 11 June
context: Cautious re-evaluation of BRI’s international positioning continues following escalation of China-US trade-and-tech war. This article breaks new ground in suggesting BRI build local legitimacy through participation of civilian entities.
BRI reflects China’s awareness of the importance of Eurasia and the Maritime Silk Road, says Zan Tao 昝涛 Peking University School of History associate professor. It is part of China’s efforts to join the global order and reshape the world order; it emerges following a set of China-US and China-East Asia issues.
BRI is just a framework without a completed blueprint, says Zan. As a learning process, it requires participation of domestic and international players to adapt to, shape and construct it. It resembles the ‘muddling through’ process of the reform and opening policy; the culture of policy practice and debate during the 1970s should be adopted for BRI, says Yin Zhiguang 殷之光 Exeter University College of Humanities associate professor.
BRI is different from globalisation as the latter is based on capitalist wealth distribution and a capitalist economic order, says Zan. Yin contends that capitalist distribution causes inequality and hegemony, and BRI must avoid it and consider how to
go beyond capitalist wealth distribution
achieve equality of development opportunities and rights
BRI is a new concept connecting China and the world, says Yin. China must reflect on the way it achieved domestic political equality and use it as the basis to develop a new narrative of global order. To guide the development of BRI, the Bandung Spirit should be advocated, he says. (note: referring to the April 1955 Bandung Conference)
BRI must avoid forcing states to trade sovereignty for financial support in the manner of the IMF, suggests Yin. Chinese enterprises and investors should contribute to the local economy to truly achieve mutual benefit.
BRI can learn from Turkey’s practice in Africa to achieve this, suggests Zan. Participation of civilian entities in BRI will be extremely beneficial, and China should ‘release the vigour of the people’, Zan says. Yin agrees and says that BR is a top-down proposal, but must be practiced from the bottom up.
Zan concludes by agreeing that China should not aim to replace the existing hegemon. It may do so, but this would not inherently make it more legitimate than the previous one.
finance
real estate and automobile stimulus in short term, 5G for the long term
Jiemian | 19 June
context: China is in search of a new growth model as old policy tools become ineffective in the ‘new era’. While 5G empowered high-tech and advanced manufacturing sounds like an attractive solution, it is unclear how much already high debt levels will be pushed up, and whether investment in these areas will be efficient and effective.
Tao Dong 陶东 Credit Suisse AG general manager and China Chief Economist Forum executive board member discussed what the next stimulus will look like
on the nation’s 70th anniversary, stabilising the economy is not only an economic matter, but a political one; further stimulus can still be expected
while delayed US monetary tightening provides more policy space for China, the major objective will still be liquidity management because monetary easing not only fails to reach the economy but creates more distortions; on the fiscal side, it does not matter how much money the government spends, but how it allocates public investment
stimulus will emphasise boosting household consumption; some attribute the recent consumption slowdown to high financial burdens from mortgages, but Tao thinks a more significant factor is changing expectations that housing price will continue growing, making households anticipate diminishing wealth
automobile and real estate markets may be new focuses for incentivising household consumption
plates, traffic control, and auto loan policies are relaxing in some cities, and new energy vehicles are subject to preferential taxes
the state is ambivalent on real estate policies: while real estate control is still important, relaxation is likely if US-China trade talks do not make significant progress and economic uncertainties still abound
long-term solution lies in commercialisation of 5G, big data, AI, cloud, and block chain
there are lot of things the government can do to facilitate corporate-driven innovation and refrain from over-regulation
issuing 5G permits is the first step on the right track, and this type of stimulus does not cost much
agriculture
state pushes traceability for key products
Ministry of Commerce | 6 June
context: Inter-agency coordination is critical to building effective traceability systems covering multiple links of an industry chain. Following a set of State Council Opinions on food safety, this document clarifies responsibilities of multiple agencies and calls for better coordination on legislation, regulation, information sharing and investment.
Ministry of Commerce (MofCOM), Ministry of Industry and Information Technology (MIIT) and five other central agencies released ‘Opinions on building a traceability system for meat, vegetables, traditional Chinese medicine (TCM) and other key products via inter-agency coordination’ aimed at strengthening supervision, ensuring public safety and upgrading consumption.
The Opinions highlight coordination in key fields including
working systems and responsibilities
Ministry of Agriculture and Rural Affairs (MARA): ag product traceability covering on-farm activity and links before products enter the market or processing companies
MIIT: traceability for infant formula products
State Administration for Market Regulation (SAMR): food safety traceability, supervision of food producers and operators
State Administration of Traditional Chinese Medicine (SATCM): traceability for TCM products
National Medical Products Administration (NMPA): traceability for medical products
MofCOM: adjusting the catalogue of traced products, building traceability pilots
traceability information platforms
MARA, SAMR, NMPA to build traceability systems for ag products, food and medical products respectively and gradually integrate them into the national key products traceability system
MofCOM to build a unified national key product traceability system at central, provincial and city levels (including some counties)
applying traceability
using traceability information to guide work on market access, product recalls, market monitoring and intervention, building a market entity credit system, and industry management
traceability system investment and operation
government investment in building a public traceability service platform
local governments encouraged to build stable investment mechanisms with market participation
legislation and regulation
overall legislation led by MofCOM
introduction of national, industrial and local standards on key products
policy agenda
including traceability as an indicator in product certification processes
prioritising traceable products in government procurement
including traceability in regional coordinated development strategies
society
problems facing integrated care
Weixin | 3 June
context: Policies have been issued since 2013 to promote the integration of health care and aged care, which experts believe is vital for China’s growing elderly population. ‘Integrated care’, as it is called, got its latest boost in May 2019 when NHC and three other agencies announced the streamlining of registration and licensing for integrated care agencies. However, implementation still faces multiple obstacles.
China Elderly Care Weekly observes that integrated care in China is facing problems. On the supply side, integrated care providers suffer from high operational costs and lack of human resources when providing low-quality services. On the demand side, many can’t afford the care, and the health insurance system is under pressure with the scale of effective demand low.
The government has preferred expanding investment over integrating health care and aged care providers’ services. While the former is easier and more visible, it also requires lots of funding for very few facilities. The government has also emphasised infrastructure, while neglecting services such as staff training.
The supervision of ongoing projects has been neglected, resulting in market chaos and significant mismatch between supply and demand. There is a serious over-supply of both high-end and poorly-furnished elder care facilities, but highly sought-after mid-range facilities are lacking.
Currently only medical expenses are reimbursed, but aged care expenses are not, and neither basic medical insurance nor basic pensions can be used toward integrated care expenses. Elders’ inability to pay has deterred integrated care demand. Wan Rentao 万仁涛 Houpu Aged Care Consultancy senior partner says long-term care insurance should provide financial assistance to elders who struggle with activities of daily living (ADLs).
There is also a lack of coordination between government agencies. No single central agency is responsible for integrated care, and notices are almost always released jointly by several. At the local level, even more agencies are involved. Though policies are in place, differing opinions from different agencies make implementation difficult.
governance
study examines mental health of Party cadres
Nanjing Daily | 5 June
context: That Party members are under increasing pressure in an era of massive restructuring and reform is not a surprise. The report below appears to be one of the most comprehensive assessments released to a public audience.
Nanjing Cadre Assessment Service Centre recently announced results from its research on cadres’ psychological quality and factors affecting grassroots cadres’ mental health, putting forward support measures. Because grassroots cadres are connected with thousands of families, the authors noted, their capabilities and mental health are closely related to citizens’ vital interests.
Compared with the national average level, according to the study, Nanjing grassroots cadres have
stronger sense of responsibility
good psychological endurance
necessary resilience to solve problems
suitable self-control and adaptability
At the same time, researchers noted, problems are also apparent
psychological harmony is lower than the national average
work stress is higher than the national average
career development pressure is higher
strong psychological discomfort
Mental health problems of grassroots cadres are the result of multiple psychological influences
high pressure of accountability and heavy assessment tasks result in psychological burdens
narrow promotion channels and limited space for career development cause mood imbalances, low sense of professional honour and lack of trust, affecting enthusiasm and self-confidence
fear of inadequate abilities aggravate psychological pressure, distress
Differentiated mental health services should be implemented for different groups. For example, female cadres lacking self-confidence and enthusiasm should be provided more experience in key posts. Male cadres need to develop optimism and trust, and better coordinate work and family. For young cadres with career development pressures, beliefs should be strengthened while exposure to different experiences and pressures help them mature. Middle-aged cadres have rich experience, but family and interpersonal pressures.
Cadre selection and cultivation should also be sensitive to individual personalities and qualities. Daily cadre management should involve intervention to reduce anxiety, depression, fear and other negative emotions. Strengthening psychological counselling and physical exercise are proven ways of relieving pressure, the study noted.
trade
BRI an opportunity for Northeast China
Sina Finance | 3 June
context: Along with the Beijing-Tianjin-Hebei region, Yangtze River Delta and Pearl River Delta, Northeast China features heavily in national development strategies. A collection of Belt and Road projects connects Northeast China with Mongolia, Russia, and some European countries, meant to help transform the region’s under-performing economy.
Jiang Zengwei 姜增伟 former China Council for the Promotion of International Trade chairman says that Northeast China should take Belt and Road Initiative as an opportunity to
develop the China-Mongolia-Russia economic corridor
promote infrastructure investment and connectivity
construct a Northeast Asia FTZ network
speed up opening-up
In comparison to coastal regions, Northeast China lags behind. Jiang suggests the region needs
administrative reform
increase transparency
remove market access barriers
fulfil preferential policies
improve intellectual property rights protection
industry structure reform
increase the proportion of advanced manufacturing and modern services industries
develop new agricultural technologies
SOE reform and private business development
to retain talent
Complementary Northeast Asian economies provide opportunities for revitalisation of Northeast China, says Jiang, noting that an improved China-Japan relationship, enhanced China-Russia economic cooperation, and stabilisation of the Korean Peninsula all create a positive climate for cooperation among Northeast Asian countries.
Jiang also lists current developments in Northeast China
Heilongjiang province
built trade ties with almost 60 Belt and Road countries
developed China-Mongolia-Russia economic corridor
built 18 Economic and Trade Cooperation zones with Russia
Jilin province
developed Tumen River Region trade and economic cooperation
developed new-energy and smart vehicle manufacturing base
Liaoning province
implemented 123 reform pilots
building Dalian-Manzhouli-Russia-Europe, Manzhouli-Russia-Europe and Dalian-Yingkou-Manzhouli-Russia-Europe tunnels
industry and environment
new central environmental inspection rules
State Council | 18 June
context: Carrying more authority than the officially unreleased 2015 environmental inspection guidelines that focused on Party and administrative discipline, this new policy is the state’s latest attempt to institutionalise and routinise environmental inspections. Important highlights include creation of an environmental inspection leading small group and a formal MEE central environmental inspection office, plans to conduct inspections on a regular basis, and clarification of inspection procedures.
CCP Central Committee and State Council issued new regulations on central environmental inspections, stipulating
a specially appointed inspection agency will be in charge of carrying out central environmental inspections of provinces, State Council departments and relevant central SOEs
central environmental inspections will consist of regular inspections, special inspections and re-inspections
Party Central Committee should conduct regular inspections and re-inspections, and launch special inspections on major environmental issues
Ministry of Ecology and Environment (MEE) should draft
five-year inspection plans which will be implemented after receiving State Council approval
annual plans which should clarify inspection work arrangements
a central environmental inspection work leading group will be set up to coordinate and facilitate inspections, with members from CCP General Office, CCP Organisation Department, CCP Publicity Department, State Council General Office, Ministry of Justice, MEE, National Audit Office, Supreme People’s Procuratorate
central environmental inspection office will be set up within MEE, and will be responsible for the leading group’s daily work
leading group responsibilities include
implementing CCP Central Committee and State Council decisions
reporting progress to CCP Central Committee and State Council
reviewing inspection rules and reports from the central environmental inspection office
inspection office responsibilities include
reporting progress to the leading group and implementing tasks assigned by the leading group
drafting inspection rules, plans and implementation measures
coordinating central environmental inspection teams
reviewing, compiling and submitting inspection reports
instructing provinces to carry out provincial inspections
central environmental inspection teams will be headed by current or retired officials at provincial or ministerial level alongside MEE officials
regular central environmental inspections will be conducted on
provincial governments
State Council departments tasked with key environmental protection responsibilities
central SOEs involved in activities with significant environmental impact
regular central environmental inspections will cover
implementation of CCP Central Committee and State Council decisions
implementation of national environmental regulations, policies, standards and planning
major environmental issues and solutions
progress in regions with deteriorating environmental quality and pollution treatment
progress in correcting environmental issues reported by the public
interference with inspections
re-inspections will cover rectification progress and setting up of long-term environmental protection mechanisms
special inspections will cover
issues requested by CCP Central Committee and State Council
major environmental issues in key regions and industries
typical cases of insufficient rectification
inspection procedure
preparation
inspection teams dispatched to localities
report drafting
inspection feedback
transferring cases to localities for rectification
rectification
inspection results will be used in officials’ evaluations and as key considerations for promotion or punishment
penalties for
inspection team members unable to perform their duties
officials and firms that
falsify information
refuse to provide necessary materials
interfere with inspections
are uncooperative with on-site checks or evidence collection
refuse to rectify environmental issues
take revenge on officials or citizens that report environmental issues
adopt ‘one-size-fit-all’ measures
science and innovation
high-end manufacturing support measures expected
Economic Information Daily | 20 June
context: China has been committed to upgrading its manufacturing sector with national strategies like Made in China 2025 as labour and production cost rise. Escalating tensions between China and the US have not helped. As pressure mounts, the state plans to announce more incentives to support industry growth.
Central and local governments will further support manufacturing investment and development, says Meng Wei 孟玮 National Development and Reform Commission (NDRC). Meng says they will focus on key and bottleneck areas, including
accelerating major sci-tech infrastructure construction
developing strategic emerging industrial zones
cultivating advanced manufacturing clusters
implementing tax incentives and fiscal policies
deepen equity issuance reform
improve sci-tech innovation board’s institutional arrangement
improving market environment, including access, administrative approval and tender
improve investment area devolution
promote the ‘investment project responsibility system’ (Note: the government sets standards in this approach, asking investors to pledge compliance)
With a rigorous ecosystem in place, manufacturing investment and development will focus on high-end and bottleneck industries, says Li Yiming 李艺铭 China Centre of Information Industry Development Institute of Electronic Information (CCID) deputy director. Those include
high-end areas with strong demonstration effects
electronic information products
transportation equipment
specialised equipment
important bottlenecks
new materials
Economic Information Daily notes Guangdong, Hubei and other local governments have ramped up investment policy support, while the tech innovation board created new investment opportunities. Based on discussions around the tech innovation board, Li Taoyang 黎韬扬 China Securities military sector chief analyst predicts high-end manufacturing investments will focus on key materials and components, and smart manufacturing.
China Policy is a Beijing-based research and advisory company. Supporting our clients at multiple levels, from in-house research teams to CEOs and boards, we help them anticipate, understand and respond to China’s changing domestic policy and geopolitical environment. Contact us for more information on our services.