May: mending fences as tensions rise
China and the US reached a ‘ceasefire’ on trade in a meeting in Washington 17-18 May. Song Guoyou 宋国友 Fudan University Centre for American Studies warned that this was only a first step and resolution is a long way off. The process will be full of twists and turns, predicted Chen Xiaochen 陈晓晨 Renmin University Chongyang Institute for Financial Studies.
Abating without disappearing, the threat of trade war was interwoven with Korean and Middle Eastern affairs. Chinese cooperation was needed on Korea: however diplomatically independent Kim Jong-un might appear, the US still saw Beijing as key to the situation. Not so in the Middle East: China answered mooted US withdrawal from the Iran nuclear agreement by promising to buy Iran’s oil despite sanctions. Tensions with the US were more apparent in the South China Sea. China moved to mend fences in the Asian region, including with Japan and India. Setbacks with Australia and Malaysia, where elites are divided over impacts of Chinese trade and investment, lent support to some voices of caution in China.
Attended by Xi Jinping and all but one of the Politburo Standing Committee, the National Environmental Conference convened 18-19 May. Held seven times in the last 38 years, the top line up at this year’s meeting signals unprecedented political commitment to environmental protection. Granted new powers in the March government reorganisation, Ministry of Ecology and Environment swiftly launched high-profile environmental inspections along the Yangtze River. In the opening salvo 29,000 non-compliant companies and 18,000 errant local officials were penalised.
Release of the financial sector 13th 5-year plan in May outlines the state’s ambition for a modern financial system, presumed to include internationalisation, risk resilience, competitiveness and regulatory upgrade. Financial sector competitiveness is expected to be strengthened by its openness, and the opening up risk is balanced by new technical tools.
Tax incentives worth C¥60 bn to support sci-tech startups and innovative micro, small and medium-sized enterprises, are in train. They include nationwide tax deductions for venture capitalists and angel investors. Central SOEs are directed to increase R&D spending to boost innovation across the public and private sectors. Scientists in Hong Kong and Macau will get simplified cross-border funding transfers and access to large research equipment. Ministry of Science and Technology approved 17 National Key R&D projects (NKPs), allocating over C¥5.8 to 267 sub-projects.
The rural sector this month received a suite of measures to give consumers better access to goods and raise rural incomes and quality of life. These included: updated regs for large ag companies (Ministry of Ag and Rural Affairs) expanded rural e-commerce pilots (Ministry of Finance) and a document on rural–commercial links (Ministry of Commerce). Together they suggest a broad, coordinated policy push to ensure ag products move smoothly from production to market.
Following the central reorganisation, similar overhaul at the local government level is well underway. Academic debate rages over balancing governance decentralisation with more effective enforcement of central directives. The Party is seeking a solution to improving work incentives for state employees. State Council guidelines urge local officials to be creative and daring in policy action, promising greater tolerance for failed experiments. SOEs will also see progress in salary reform to reduce pay gaps between managers and employees and boost productivity.
State Drug Administration released nine policies in late April and May 2018 to more quickly deliver cheaper imported drugs and medical devices to domestic patients. State Council with two ministries pushed policies on skilled labour and professional training to meet strong market demand.
may policy movers
policy professionals in and out of the establishment
Huang Runqiu 黄润秋| Ministry of Ecology and Environment vice minister
Now vice minister of MEE, Huang was formerly vice chairman of the Standing Committee of the Sichuan Provincial People’s Congress. Trained as a geologist, he has helped draft environmental laws and policies. Despite significant improvements, he warns, the nation is hard put to improving environmental quality. Controlling and mitigating pollution sources is crucial, he suggests, for further reducing pollution. Technological innovation, he adds, is needed to address such issues. High concentration of polluting industries, heavy reliance on coal and significant vehicle emission in the Jingjinji region (adjacent to Beijing) make improving air quality particularly challenging.
Zeng Gang 曾剛 | National Institution for Finance and Development vice director
Innovation and entrepreneurship must be properly financed, says Zeng. It can take years to bring startups and SMEs to profitability and liquidity: the public sector must intervene to strengthen the venture capital industry. Inclusive finance efforts should promote the creation of a standalone business model, rather than philanthropy by banks, he argues. The growth of SMEs, start-ups, online retailers and entrepreneurs has raised demand for affordable and accessible financial services, he says, while fintech progress has reduced costs and risks of inclusive finance. Guided micro-credit and inclusive loans could draw SMEs away from unregulated black market loans, the weakest point of China’s financial system.
Ren Xianliang 任贤良 | China Federation of Internet Societies president
Founding president of a new state-backed industry association and vice chairman of the All-China Journalists Association, Ren is a leading Party theorist on media control. He is the author of a how-to guide instructing officials on public and media relations that gained wide traction within official ranks. Ren was a vocal proponent of the crackdown on social media ‘Big V’s’, famously saying ‘the Internet is not outside the law’. Ren worked as a reporter for Xinhua News Agency in Shaanxi 1983-98 and stayed in the province to serve as provincial Propaganda Department vice head until 2013, speaking frequently in public to defend the party’s press control policies. He served as Cyberspace Administration of China (CAC) vice director July 2015-December 2017.
Hong Tao 洪涛 | Beijing Technology and Business University Institute of Business Economics director, professor
A leading advisor to the state on food safety and system logistics, Hong is a longtime advocate of rural e-commerce and logistics as a way to improve the efficiency of food distribution. In May 2018, he has touted the benefits of robust cold chain systems, built-in traceability and adoption of anti-fraud technology. Hong also heads the China Food E-commerce Research Institute and sits on a number of expert committees linked to Ministry of Ag and Rural Affairs and Ministry of Commerce, as well as domestic commodities exchanges.
policy ticker highlights
gems from our feed of policy releases and domestic debate
geopolitics
supporting Iran with oil purchases post nuclear deal
Beijing Times | 8 May
context: China, like other signatories, is resisting complying with Trump’s plan to withdraw from the Iran nuclear agreement. It even foresees expanding its influence in the Middle East.
Now that Trump has announced imminent withdrawal from the Iran deal, comments Beijing Times, China and Russia are Tehran’s only means of support against economic collapse. Based on the current terms of the nuclear deal, Iranian oil cannot be sold to China now that the US has pulled out of the agreement. However, China has a huge demand for oil, and Iran’s oil can meet China’s development needs. Should Iran be able to offer China oil at below market rate, the Chinese market would undoubtedly support trade.
China recently dispatched a special envoy to Tehran to negotiate with top leaders on Iran’s oil exports. At present, remaining challenges include resolving oil transport issues, as the Sino-Iranian oil pipeline must be completed to make large scale trade feasible.
China’s full assistance has undoubtedly helped Iran set its fears at ease. Beijing is promoting a new pattern of cooperation, in which Russia no longer supplies arms to Iran and China provides financial support. Without the help of Russia and China, Iran would be unable to continue against US sanctions.
finance
modernising the financial apparatus for stability and de-risking
China Business Journal,Caixin Finance, Caijing | 23 May
context: One of the ‘three sieges’, financial risk prevention is a key macroeconomic priority for the state. Financial opening up, monetary policy reorientation, and controlling local government debt are all designed around this central initiative. After substantial groundwork, the 13th 5-year plan calls for modernising the financial system, which not only contributes to stability but reveals the state’s ambition to be a global finance powerhouse.
The 13th 5-year plan on modernising the financial sector is of great significance; an overarching document, it delineates the development structure for the financial sector over the next five years, says Dong Ximiao 董希淼 Renmin University Chongyang Institute of Financial Studies senior researcher. According to Dong, a modern financial system requires supply-side structural reform in the sector by
adjusting resource supply towards clients in line with policy orientation to enhance accuracy and efficiency
innovating product lines and use interest rates, maturity, and quota to meet market needs
accelerating non-performing asset disposal
improving breadth and scope of financial services
Making macro-prudential assessment (MPA) one of the two pillars signals the elevated importance of financial stability. MPA policies have been implemented in full force over the past two years, says a finance scholar. MPA has become a prevalent central banking practice in major economies since the 2008 financial crisis, says Wen Bin 温彬 Minsheng Bank chief researcher. After its top-level mention in the 19th Party Congress report, the MPA and monetary policy dual pillars are again specified in the 5-year plan as the direction for financial regulation and macro-adjustment, adds Wen.
The 5-year plan focuses on seven prominent risks, reports Caixin,including
liquidity shortage
non-performing assets and implicit liabilities
bond defaults
abnormal volatility in equity and futures
real estate bubbles
illicit cross-border capital flows
attacks on financial cyber infrastructure and information theft
The 5-year plan incorporates the newest developments in financial regulation and reform, and 90 percent of its proposals are already being implemented, say experts to Caijing.
agriculture
2018 rural e-commerce pilot details announced
Ministry of Finance | 28 May
context: As internet penetration rises among rural residents, it is creating opportunities for e-commerce to be used both as a sales channel to boost the value of agricultural products and as a tool to increase access to consumer goods, raising rural quality of life. Developing standards for ag products sold via e-commerce platforms is on the policy agenda this spring, as is expanding cold chain logistics. Expect growing support for this strategic emerging industry.
Details for 2018 rural e-commerce pilot implementation were published in a notice from Ministry of Finance 28 May 2018, which stipulated
development goals
identifying and supporting a batch of counties that demonstrate how rural e-commerce can support employment and service provision
increasing e-commerce pick-up and delivery coverage to 50 percent in pilot areas
delivering online retail growth rates in pilot regions that are higher than national average in rural areas
scope
prioritising impoverished areas, including
key counties in national poverty alleviation strategy
regions identified by State Council 13th 5-year plan for poverty alleviation
focus of central government fiscal support
upgrading classification, packaging, marketing and transportation of ag products
improving rural public service systems
providing rural e-commerce business trainings
further details
localities will organise applications by 31 May 2018
pilot list will be determined by 15 Jun 2018
province fiscal departments will allocate funds and organise implementation
society
offering lifelong professional training to college graduates and migrant workers
China News, Ifeng | 12 May
context: Professional training institutions are likely to boom as subsidised vocational training programs are opened to qualified corporations.
Ministry of Human Resources and Social Security (MoHRSS) now lists college graduates, rural migrant workers and workers from overcapacity enterprises as basic target groups for a ‘lifelong professional training system’. Chen Zhan 陈战 Zhongzheng Zhida Consulting says the phased policy aims at driving social training forces to help the growth of small and medium enterprises as well as traditional enterprises. He expects upgrading of professional training businesses as a result.
To help rural migrants and especially new-generation migrant workers improve their professional skills, State Council ‘Opinions on promoting lifelong professional skills training’ advocate a ‘spring tide movement’. The movement has two basic goals: developing migrant workers into a high-skilled professional labor force, and offering entrepreneurship trainings to those returning to rural areas. Chen argues that traditionally labour intensive industries no longer need a large labor force, and systematical professional training will solve many practical problems.
For college students, the Opinions highlight policy support for entrepreneurship during education, reports Chinanews. Chen sees professional training as a rigid demand in higher ed, based on negative perceptions of college graduates’ professional skills.
governance
new central guidelines on model officials
People's Daily Online | 21 May
context: The anti-corruption campaign created significant passive resistance to reform during Xi’s first term, as officials opted for non-action to avoid catching the attention of corruption busters. To ease the problem, new guidelines put more emphasis on performance outcomes, while reassuring officials of the space to make mistakes.
The CCP Central Committee issued a list of expectations for Party officials in the new era on 21 May 2018. Keys to being a model official, according to the document, include being
daring, efficient, accountable and action-oriented
loyal to the party
decisive in handling big and complicated issues, responsible in carrying out daily routine work
serving as a model for lower-level cadres
Meanwhile, the cadre promotion system should
have realistic criteria, and discourage cadres from making lofty promises
discourage formalism and bureaucratism
encourage officials who take responsibility for their actions, be tolerant of mistakes resulting from bold experimentation
punish malignant accusers and rectify the name of wronged officials
strengthen cadres’ professional training, connect theory to practice
encourage grassroots innovation
trade
ten suggestions for a new BRI international cooperation platform
Center for China and Globalisation | 8 May
context: Since the Belt and Road Forum a year ago, China has been actively pushing through the deals signed there, but the international community has voiced concerns over the transparency, sustainability and underlying strategic goals of such projects.
A new international cooperation platform should be established for the Belt and Road Initative (BRI), suggests Wang Yaohui 王辉耀 Centre for China and Globalisation founder and president. Wang offers ten suggestions to build a new platform for international cooperation under BRI
a legal framework for international governance
establish an international council to coordinate relations between BRI countries
draft a ‘Belt and Road’ Charter to develop fair and mutually beneficial security conditions
establish an international law commission and an overarching dispute settlement centre to form a new order of regional governance
strengthen cooperation with UN, World Bank, IMF, WTO and other international organisations
BRI’s vision is consistent with the goals of UN’s 2030 Agenda for Sustainable Development
BRI requires support from professional talent in various fields and should cooperate with International Labor Organisation and International Organisation for Migration
invite developed countries, such as the EU, Japan and South Korea to participate in the initiative
deepen cooperation with key countries
for example, the UK is more experienced than China in legal and financial services, and its participation as a third party could benefit market cooperation
a permanent body for BRI
a permanent secretariat should be set up to facilitate the advancement of projects
countries can take turns to host an annual meeting for think tanks to exchange ideas
an international enterprise alliance to attract the world’s top 500 companies to participate in BRI
businesses are encouraged to join the alliance, focusing on development, industry, border trade, science and technology, logistics, finance, tourism and cultural exchange
the alliance can organise international forums, such as a manufacturing summit, a SME Summit, a MNC and SME cooperation forum, etc. to facilitate exchange of ideas
a few countries and demonstration projects should be held up as role models for future endeavors
development districts and industrial zones in Pakistan, India, Kazakhstan, Kyrgyzstan and Mongolia can be potential choices
continuously expand financing channels and innovate financing schemes
focus on developing overseas economic and trade cooperation zones and parks
as of end 2016, the number of cooperation zones under construction reached 56 in 20 BRI countries, accounting for 72.72 percent of all zones under construction by China
these zones contributed US$1.07 bn in taxes to host countries and created 177,000 jobs for local people
can help China’s competitive industries achieve agglomeration overseas and accelerate the industrialisation process for host countries
give full play to the role of overseas Chinese in international cooperation
overseas Chinese are encouraged to develop and operate overseas cooperation zones, build CBEC demonstration bases, conduct nongovernmental diplomacy and cultural exchanges, promote information exchange and resource sharing, and expand financing channels
a ‘digital Silk Road’ should take advantage of China’s leading internet technology, big data technology and CBEC development
industry and environment
National Environmental Conference convenes
State Council | 19 May
context: National Environmental Conference has been held seven times over the past 38 years and mostly attended by premiers and vice-premiers. The fact that President Xi addressed the conference this year indicates that unprecedented state attention given to environmental protection will not abate. High-profile environmental policies and escalating enforcement, including the new action plan on air pollution, are expected over the next few months.
National Environmental Conference convened 18-19 May, setting the tone for a new environmental agenda. President Xi Jinping 习近平 delivered the keynote speech, reiterating the goal to ensure a ‘fundamental improvement’ in the environment by 2035, which will be achieved by
pushing for a ‘green development’ model that focuses on
readjusting energy and economic structures
integrating environmental concerns into spatial and industrial planning
fostering and expanding environmental protection, clean production and clean energy industries
advancing resource conservation and recycling
promoting green and low-carbon lifestyles
prioritising environmental issues affecting people’s well-being, including
significantly improving air quality and eliminating heavily polluting days
ensuring drinking water safety
cleaning up ‘black foul-smelling’ waters in cities
reducing key soil contaminants and controlling soil contamination risks
improving rural living environment
fending off environmental risks
improving environmental governance via
developing resource and environmental pricing mechanisms
supporting public-private partnership projects
putting forward strategies to mitigate climate change
setting up an official evaluation system that factors in environmental performance and holds officials accountable for environmental damages
science and innovation
global 5G standards: commercial versus national interests
context: The debate around 5G standards is increasingly politicised, limiting the space for foreign and domestic firms to make decisions on the basis of their commercial interests.
Online media report that Lenovo did not support 5G standards proposed by Huawei at two meetings of the international industry association 3GPP in 2016, leading standards by Qualcomm and other foreign firms to be adopted instead. Outsiders should not overly politicise the standard-setting process, says Huang Ying 黄莹 Lenovo vice president. Debates are primarily technical and about company rather than national interests. Consensus is key, as a proposal is only accepted if it gets over 71 percent of votes. At meetings in Gothenburg (R1-86) and Lisbon (R1-86b), Lenovo did support the more established technology LDPC for channel coding over Huawei-backed Polar Code,but so did many other Chinese and overseas firms, says Huang. Around 3:00 AM, LDPC was finally accepted for larger packages but protocols for smaller packages remained unresolved. After Lisbon, Huawei and Lenovo discussed their differences. At the next meeting in Nevada (R1-91), Lenovo supported Polar Code and the industry eventually reached a compromise that allowed both LDPC and Polar Code to be used in different situations, explains Huang. Huawei publicly thanked Lenovo for its support. Huang’s story is corroborated by 3GPP’s public record and Wang Yanhui 王艳辉 China Mobile Phone Alliance secretary general, who attended the meetings, reports Caixin.
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