may: 20th CPC third plenum set for July
month in focus
Warm welcome all…
This is a long one. Are issues multiplying?
A shift in real estate policy has happened, but no one thinks it will move the dial.
The Symposium in Jinan, Shandong, was the standout event of the month. Government, business and academic leaders convened ahead of the 3rd Plenum. The aim was clearly to reassure the private sector. This is shaping up as a major theme for the Plenum. Another theme is financial risk. Watch the growing coverage of these two issues as the Plenum approaches…
Happy reading
Philippa
The much-anticipated 20th CPC Central Committee Third Plenum, which will set economic principles for the next five years, was finally announced for July 2024.
General Secretary Xi Jinping then engaged business leaders and academics in discussion ahead of the Plenum at a Symposium in Jinan, Shangdong. Flanked by core central officials, he reiterated New Era development doctrine, as he urged those attending to ‘unchain’ social productivity and harmonise top-level policy designs with the economic base. Surprisingly, Xi was briefed at the Forum by veteran reformer Zhou Qiren 周其仁, and Zhang Bin 张斌 CASS Institute of World Economics and Politics. Neither applaud Xi’s plans for the economy.
At its May meeting, the Politburo once again focused on mitigating financial risk and strengthening Party control over the financial sector. Premier Li Qiang 李强 later lectured local finance officials on controlling systemic risk.
The PRC economic puzzle continues. Value-added for large firms rose 6.7 percent y-o-y in April, evidence of manufacturing health. Yet consumer prices remained flat, and producer prices fell 2.5 percent y-o-y over the same period, signalling poor appetite for consumption and weak confidence.
Most troubling was real estate’s stubborn decline, which dragged down the economy: prices of new and existing homes kept falling in all cities in April. Investment in the sector fell nearly 10 percent y-o-y.
Beijing finally delivered a shift in real estate policy in May, the first since prices and sales sagged in April 2023. Signalling imminent change at a 30 April 2024 meeting, the Politburo urged new measures to absorb existing housing stocks while prodding new starts. On 29 April, the Ministry of Natural Resources prohibited sales of state-owned land in cities with over 36 months of inventory, a token of concern if not panic.
Measures dropped after a joint meeting of housing and financial authorities on 17 May. They confirmed the new blueprint: an escalation of state involvement in housing. Localities are tasked with converting idle finished properties into affordable housing, with C¥300 bn via a PBoC relending facility to grease the wheels. Minimum deposits on first and second homes were lowered five percentage points, while national minimum interest rates for mortgages were scrapped. Localities, meanwhile, continue removing real estate limits, with full marketisation in sight.
Most experts agree that Beijing has not provided enough funds to solve the problem: estimates for the cash needed to convert most unsold homes are in the trillions of RMB. But the state has undoubtedly shifted its approach. Scaling up is only a matter of time.
Trade performed better than expected. Exports and imports grew 1.5 and 8.4 percent over 2023. According to experts, policy support may be taking effect, noting that demand recovery at home and abroad also helped the recent uptick. Support measures are still being rolled out. Help in export credit insurance was pledged via Sinosure, a dedicated SOE.
US military and tech firms faced sanctions for their arms sales to Taiwan. Citing Taiwan’s continued restrictions on PRC exports, Beijing withdrew some trade perks to the island. This follows a similar move in December 2023. In response to a new round of US tariffs on PRC goods, not least on EVs, batteries and semiconductors, Beijing brandishes ‘commensurate’ retaliation. More US trade measures are on their way, warns an expert. Against investment headwinds abroad, MofCOM introduced new measures urging overseas PRC firms to log their projects with them.
The latest US tariffs target the ‘new three’ clean energy products (batteries, solar panels, EVs), now pillars of PRC export growth. Their short-term impact will be minimal, argue experts, yet many firms seek to skirt further trade barriers by expanding overseas operations.
NDRC approved amended power market rules, effective 1 July 2024. Part of ‘1+N basic rules’ to undergird a national power market, the latest text adds ‘capacity trading’ to the listed transaction types. Current protocols typically pay power generators and energy storage projects for power made available at given times. They are valuable for ensuring new power systems can meet peak demand.
State Council has adopted an action plan to digitise manufacturing. While not yet public in full, available hints foresee targeted support for SMEs and new tech standards to increase equipment interoperability—which is crucial for networked manufacturing.
On 9 May, the US added 37 PRC institutions to its sanctioned 'entity list,' including the University of Science and Technology of China, housing one of the country's leading quantum labs. By apparent coincidence, Premier Li Qiang 李强 visited the university and other Hefei quantum labs the following day. He stressed the need to stay ahead of the curve in the next tech revolution.
At their first bilateral AI dialogue, the PRC and the US agreed on basic AI safety; readouts from either side failed to provide details. Cooperation may be limited given the PRC's attacks on US export restrictions on AI chips and software and US concerns about Beijing's potential misuse of AI.
Premier Li Qiang 李强 reaffirmed unwavering commitment to grain production support, backed by ABC (Agricultural Bank of China) pledging C¥110 bn for summer grain purchases. Despite confident harvest forecasts, concerns filtered through as the MoF (Ministry of Finance) released C¥309 million for flood relief in southern growing zones. MARA (Ministry of Agriculture and Rural Affairs) published a flurry of advice for the imminent Huanghuaihai wheat harvest, where lodging (bending or breaking of stalks) threatens to lower yields by up to 30 percent. After the second-highest level of imports in 2023, grain imports rose 9.3 percent y-o-y across the first four months of 2024, further undercutting bullish predictions.
The NPC SC (National People's Congress Standing Committee) announced its annual work priorities in early May. The Ecological and Environmental Code is the top priority and will be submitted for hearing in 2024.
‘High-quality’ development and anti-corruption are big-ticket concerns. The Private Economy Promotion and Supervision laws, initially not even included in the 14th NPC SC’s five-year plan, are others.
Legislating a social assistance law has been set back by inter-agency rivalries, weak fiscal guarantees, etc. It has now been downgraded to a State Council backup project. Consumption tax, AI, and amended trademark laws are notable on the drafting list.
The NPC SC is to revisit schemes that can leverage overseas Chinese for resources to boost ‘Chinese-style modernisation’, smart ag, administrative law justice, et al.
The State Council issued a new two-year action plan on energy conservation and carbon reduction. While not much is new, the plan signals heightened scrutiny of key high-polluting industries.
Carbon market quota prices have steadily risen, reaching over C¥100 MTCO2e for the first time in April. The rise reflects stricter trading rules and hints that the market will soon move from power generation to include cement, aluminium and steel firms. While this is good news, experts argue that liquidity and trading activity remain low by global standards.
With ‘ecological protection compensation regulations’ in effect from 1 June 2024, officials have clarified how the scheme will improve the environment. Fiscal ‘vertical’ compensation makes Beijing responsible for doing so as a public good, investing more in compensation funds. ‘Horizontal’ compensation promotes the sharing of benefits between regional environment guardians and their beneficiaries.
Winding up a 2023 Two Sessions plan to reform state agencies, responsibility for human genetic resources shifted from the Ministry of Science and Technology to the National Health Commission. This will ease regulation and innovate in biotech. Sticking with anti-corruption, random (‘unannounced’) spot inspections of basic medical health funds in 2024 were launched, checking this year’s focus areas and re-checking those of previous years for the first time.
Addressing the mounting medical needs of seniors and upgrading the handling of medical emergencies, NHC and other ministries issued ‘Opinions on reinforcing capacities in critical medical care’, stipulating more ICU beds and skilled staff. In subsequent steps, NHC plans to overhaul geriatric nursing services and support integrating medical and senior care.
The Degree Law was amended. Effective 1 January 2025, the key change is demarcating professional from academic diplomas, allowing holders of non-academic qualifications to meet industry needs.
Focusing on rural shortfalls, MoE has created a regular reporting protocol to enforce compulsory education attendance and curb dropping out. More funds are directed to teachers participating in a ‘special post’ program to shore up rural education, with an increase of CN¥ 2.3 bn for compulsory education.
Responding to the rise in bullying cases, MoE set out measures, including student bullying management committees in every school.
A conference on intensifying ideological/political ed in schools for the New Era was held in Beijing 11 May 2024. General Secretary Xi Jinping 习近平 called for an education model with more integrated K-12 ideological instruction, bringing in specialised teachers.
Xi Jinping 习近平 had a packed month on the diplomatic front. From 5-10 May, he visited Europe for the first time in five years. In Paris, talks with President Emmanuel Macron and EC President Ursula von der Leyen focused on PRC industrial overcapacity and unequal market access. In Serbia, Xi was warmly greeted by Aleksandar Vučić. Xi confirmed their ‘ironclad friendship’, signing 29 agreements. Capping his tour in Budapest, Xi met Hungarian PM Viktor Orbán, agreeing to elevate bilateral relations to an all-weather ’comprehensive strategic partnership’ for the new era.
Visiting the PRC 13-14 May, South Korea’s Cho Tae-yul held talks with Wang Yi 王毅, in the first visit by a South Korean FM since 2017. PRC experts deemed it favourable, ahead of the China/South Korea/Japan summit in Seoul 26-27 May, on hold since 2019. I Premier Li Qiang 李强 speaking separately with President Yoon Suk-yeol, set up a diplomatic and security dialogue and resumed talks on an expanded FTA. With Japanese FM Fumio Kishida, Li discussed Taiwan and Fukushima wastewater release.
With a large state and business delegation, Xi’s ‘old friend’ Vladimir Putin travelled to Beijing for a 16-17 May state visit. As Xi told a joint press meeting, he and Putin held a ‘sincere and cordial meeting… charting a course for Sino-Russian relations and cooperation’. Ten joint texts were signed, including a declaration on a comprehensive partnership.
Lai Ching-te 赖清德 became president of the Republic of China (Taiwan) on 20 May, proclaiming that neither the PRC nor the RoC is subordinate to the other. Beijing responded with the worst-yet military drills around the island. Significant PRC policy community voices urged retaining ‘strategic rationality’.
Excellent overview!