May roundup: Belt and Road show
The Belt and Road Forum 14–15 May saw further massive funding boosts for the initiative, despite doubts over its long-term risk/benefit ratio. Funding and risk sharing by markets and third countries is now a sub-theme. While India was conspicuously absent, last-minute attendances by the US and South Korea were received positively.
New South Korean President Moon's high-level envoy to Beijing, former PM Lee Hae-Chan, expressed a need to restore bilateral ties. Beijing recognises domestic constraints on Moon, but THAAD deployment remains a serious issue.
State Council’s latest executive meeting announced measures to lower enterprise costs and called for speeding up Made in China 2025, through SOE–SME collaboration and building more smart manufacturing demo zones. Ministry of Science and Technology called for more national high-tech industrial development zones: to reach 240 by 2020. Experts argue they are vital to sci-tech firms Going Global. Ministry of Industry and Information Technology’s ‘Automobile industry mid- to long-term development plan’ also emphasised international competitiveness, and extending the innovative results of new energy vehicles and connected cars to the entire sector. Belt and Road (B&R) is redirecting Going Global, with recipient states set to become top ODI destinations. Chinese Academy of Sciences plans a network of B&R innovation communities by 2030.
Cyberspace Administration (CAC) has set up a legal structure, effective June, to deny foreign investment access to the online news market, confining private investors to news distribution under tight oversight. Efforts against hacking of personal information are ramping up, due to its rapid rise in scale and severity. Chiefs of the police, prosecution and the courts jointly pledged heavier punishment for insiders illegally selling data.
Security measures are tightening across the board. In one brief month, Xinjiang was placed under a new oversight office, independent think tanks further restricted, cultural organisations beyond Party control outlawed, and a new anti-espionage law issued.
Pilots in several level three urban public hospitals will trial removing the state from their employment decisions, allocating fixed quotas of public payroll jobs as necessary. With clamps on house purchase and mortgage lending in tier-1 and -2 cities, lower tier property markets continue to heat up, particularly within the three main urban clusters, Beijing, Shanghai and Shenzhen/Guangdong. Baoding, a tier-3 city that will border the planned Xiongan New Area, on 20 May 2017 placed an unprecedented ten-year waiting period on reselling apartments on a new tract of residential land. 30 cities have now brought in re-selling restrictions.
Ministry of Agriculture announced five sustainability initiatives this month, affecting the livestock, fresh produce, staple crop and aquaculture industries. The livestock sector, already suffering from bans on animal husbandry in watersheds and protected areas, is now the target of two additional sustainability campaigns: one aimed at controlling livestock waste pollution from large-scale farms, and a second promoting organic fertilisers in fruit, vegetable and tea production. While these crackdowns are causing short-term price volatility, medium-term goals in supply-side structural reform are the priority.
Local government borrowing, in excess of designated bond quotas, dies hard, despite efforts to reduce breaches. Implicit guarantees on their financing vehicles and local SOEs still prevail, adding to uncertainty about what governments actually owe. Turf wars between central and local governments are unlikely to end, unless new sources of funding can replace local reliance on credit.
may policy movers
policy professionals in and out of the establishment
An electricity expert and professorial senior engineer, Liu has 40 years of experience in the electricity industry. After his tenure at State Grid, he set up the Global Energy Interconnection Development and Cooperation Organisation, which seeks to allocate clean energy worldwide with the help of advanced ultra-high voltage (UHV) grids. Global energy interconnection will be a reality by 2050, advises Liu; clean energy will then account for 80 percent of total global primary energy. He strongly supports State Grid efforts to build UHV connecting eastern and western grids.
Ma Youxiang 马有祥 | MoA Husbandry Department director
Ma focuses on standardising large farms, to transform and upgrade the livestock industry. His interest is moving to green development of the livestock industry, with higher epidemic prevention standards and manure treatment, upgrading facilities and equipment to modern standards. the tougher demands have closed farms, but Ma has little time for those who cannot adapt.
Lu Nanquan 陆南泉 | CASS Institute for the Soviet Union and Eastern Europe former deputy director
Lu is best known for his systematic explanation of the collapse of the Soviet Union. A ‘69 graduate of Moscow’s Institute of Finance, he was formerly in the CASS Institute for Russia, Eastern Europe and Central Asia (renamed). In his work Lu avoids reference to ‘hegemonism’, the term dominating official polemics, focusing instead on declining efficiency of investment, a theme with clear domestic policy implications. Like Korean affairs expert Shen Zhihua 深志华, Lu is respectful of Party policy, yet expresses uncomfortable views targetting policy as poorly designed, supported or implemented.
policy ticker highlights
gems from our feed of policy releases and domestic debate
geopolitics
THAAD makes restoring China-South Korea ties difficult
Ta Kung Pao | 22 May
THAAD will remain a problem for restoring China-South Korea ties as the two sides’ interests cannot be aligned, argues Zhang Jingwei 张敬伟 Renmin University Chongyang Institute for Financial Studies fellow and Charhar Institute fellow.
He says it is up to South Korea to restore ties, and that positive signals alone are not enough. Incoming South Korea President Moon Jae-yin sees restoring ties with China as urgent, says Zhang, which China recognises. Moon’s decision to appoint a high-ranking personal envoy (former Prime Minister Lee) to Beijing, and to send a delegation to the Belt and Road Forum, were appreciated by Beijing. But the THAAD issue, warns Zhang, remains a fly in the ointment. Moon’s position on THAAD, he concedes, differs from Park’s, but does not firmly place him within the anti-THAAD camp.
South Korea’s space for manoeuvre on THAAD is constrained by several factors
Moon wants to remain close to Washington (declared his first foreign visit)
the US insists on THAAD
Moon could possibly dispute who pays the US$1 bn bill to shelve THAAD
North Korean missile tests will move South Korean public opinion in favour of THAAD
Moon should not be expected to halt THAAD, argues Zhang. But nor can China yield, as the previously applied diplomatic pressure would then lose its purpose. While conceding no ground, concludes Zhang, China should accommodate Moon’s show of goodwill.
South Korea, notes Zhang, has failed to released the technological parameters of THAAD, not least the scope of its radar. As long as this is unknown, he advises that, China will oppose THAAD; although this statement does perhaps signal a modus vivendi.
trade and industry
overseas SOE investment auditing system to be set up
Economic Information Daily | 8 May
The government is speeding up the drafting of a stricter auditing mechanism targeting operations and management of SOEs’ overseas investments, notes Economic Information Daily. It covers
decision-making mechanisms and implementation
financial management systems and internal controls
maintaining safety, controlling risks and increasing the value of state-owned assets
Auditing will be mainly through
checking, verifying and analysing related materials and personnel in China
on-site examination and evidence investigations, if required by auditing, international standards, or local legislation
Central SOEs Going Global have achieved progress, especially in resource allocation and international competitiveness: they have launched investments in over 150 countries and regions, with a total asset scale of C¥5 tn, especially in
high-speed rail
nuclear electricity
ultra high voltage grids
The government is strengthening supervision as a result of the relatively late and backward development of central SOEs’ activities compared with internationally-leading multinational corporations, notes one central SOE insider, highlighting
lack of knowledge and experience in local culture and talent
flawed operating systems
negligence of risk and investment management
With State-owned Assets Supervision and Administration Commission (SASAC) publishing multiple documents in recent years, central SOEs’ investment activities will be improved and better regulated, comments Li Jin 李锦 China Enterprise Research Institute chief researcher.
agriculture
MoA: five green agriculture campaigns a top long-term priority
Farmers' Daily | 10 May
After announcing five green agriculture campaigns, experts from Ministry of Agriculture (MoA) answered journalists’ questions at a press conference on 9 May 2017 covered by Farmers’ Daily. The campaigns are in response to long-term overdraft of the environment and resources in the agriculture sector, said Ye Zhenqin 叶贞琴 MoA spokesperson; the campaigns will be inter-departmental, strategic, and long-term. Controlling agriculture non-point-source pollution has been a top priority since Xi called attention to related problems in 2015, according to Ye, who connected the campaigns with social stability, agricultural profitability, farmer welfare, and supply-side structural reform in the agri-food sector.
Responding to a question on livestock banned areas and rising imports of meat and dairy products, Ma Youxiang 马有祥 MoA animal husbandry department director noted that while scaling up in the livestock sector has benefited safety and efficiency, manure management has not been handled well, creating pollution and separating crop farmers from an important source of organic fertiliser. Ma connected the current campaign on livestock waste management with ongoing work on moving livestock production into North China and away from southern watersheds.
Responding to a question on fertiliser use, Zeng Yande 曾衍德 MoA crop management department director observed that in orchards, Chinese farmers’ chemical fertiliser use is twice that of of Japan, six times US levels, and seven times EU levels. The data is similar in vegetable and tea crops, according to Zeng, who further observes that using organic fertiliser from processed livestock waste can improve the flavour and nutrient value of foods grown as well as benefiting the environment.
society
bribery endemic in pharmaceutical procurement
Jiemian | 7 May
Corruption remains rampant in public hospitals’ procurement of pharmaceuticals and medical devices, says Jiemian. Pharmaceutical sales agents say they are obliged to bribe doctors who have the power to sway hospitals’ procurement decisions, Jiemian reports. Large public hospitals are particularly prone to the practice, it says, because of their high demand for expensive pharmaceuticals and high-end medical devices.
To stay profitable, pharmaceutical and medical device manufacturers take into account the cost of bribes when setting product prices, a move that effectively shifts the extra financial burden to consumers, according to Jiemian. Government agencies have attempted to curb the phenomenon by taking over pharmaceutical procurement responsibilities, it says, adding that cities like Shenzhen are experimenting with delegating the service to trustworthy retail companies selected by the local government.
governance
stringent regulation of online news
Cyber Administration of China | 2 May
Cyberspace Administration (CAC) issued a new set of regulations on internet news services, effective 1 June 2017.
In line with the Cybersecurity Law, the rules stipulate
an internet news outlet must be based in China
the main person in charge and chief editor must be Chinese nationals
joint ventures or foreign-invested companies are banned from entry
internet news outlets must pass CAC security review prior to partnership with joint ventures or foreign-invested companies
private investment must not enter upstream news production, and can only operate in news distribution and commentary
only state-owned news agencies can conduct news production online
On licences, they specify
websites publishing news and social media platforms engaging in news commentary all fall under the ‘internet news service’ category, and therefore must apply for licences
licences are issued by CAC provincial internet regulators, renewable every three years
internet news outlets must not go beyond the scope of content dictated in their licences
In addition
internet news outlets must submit staff and client profiles to CAC or its provincial offices
introduction of news commentary programs or anything that might ‘mobilise society’ must pass CAC security review
finance
illicit local government borrowing dies hard
Economic Observer | 25 May
Ministry of Finance (MoF) issued ‘Notice on further standardising local government debt financing’ together with five other top government bodies in early May 2017, prohibiting local governments from illicit borrowings and standardising PPP models.
Violations are still prevalent, despite multiple rounds of regulatory crackdowns, writes Du Tao 杜涛 Economic Observer. As the leading ministry on reigning in local government borrowing, MoF has been tightening pertinent regulations, says Du.
Illicit borrowings continue even with tightening regulations, Du says, because
the cap on new local bonds – on top of bonds issued to replace existing debt—cannot meet their investment needs that support an expansionary fiscal policy in times of economic downturn
local government officials’ obsession for GDP growth makes them prioritise boosting investments and growth over controlling debt level despite MoF restrictions
While abolishing high-powered incentives based on local economic growth is unlikely, central government must lift the cap—allowing local governments to issue and service bonds and enhancing information disclosure requirements on bond issue, argues the Du; otherwise, taking on illicit borrowing will remain tempting
There is no quick fix to local debt financing problems, contends Du, increasing the bond cap by small margins will only create more problems.
lexicon
short, graphic explanations of trending technical terms and jargon
school district housing 学区房 xuéqūfáng
Particularly prominent in cities like Beijing, Shanghai and Shenzhen, wealthy middle class families, facing an undersupply of high-quality education, buy up housing in elite public school districts to qualify their children for enrollment. Houses are sometimes little more than dilapidated shacks in narrow alleyways, by the competition drives prices up to as much as C¥460,000 per square metre. Various government restrictions have been issued to rein in the frenzy, which disrupt families’ expectations and at times fuel more panic buying.
china policy in the media
mentions of our work elsewhere
China-Pakistan Economic Corridor plan is OBOR flagship: Chinese President Xi Jinping
Times of India | 15 May
Xi pledged $124 billion in financial assistance, double of what the World Bank lent in 2016, for OBOR. The plan involves building six economic corridors including CPEC criss-crossing different parts of Asia and Europe. "China needs India's participation more than it needs the United States," David Kelly, director of geopolitics at Beijing-based consulting firm, China Policy, told news agencies. "It does not serve China's image and strategic interests to establish linkages in distant places while being unable to mend fences in its neighbourhood," Kelly said, adding that India would not lose much by skipping the event. "India's development pattern follows a different rhythm compared to China. India will continue to grow at its own pace regardless of whether it joins or not," he said.
Voor de ‘nieuwe zijderoute’ maakt China nieuwe vrienden
Trouw | 12 May
Tot nu toe is de realiteit weerbarstig. Binnen China’s landsgrenzen gebeurt er genoeg: lokale overheden zijn gewend binnen vage beleidskaders te werken en grijpen hun kans om nieuwe vrachtverkeerroutes op te zetten of industriële parken te bouwen. “Er is geen heldere definitie. Op dit moment kan alles Gordel en Weg genoemd worden”, zegt David Kelly, onderzoeksdirecteur bij denktank China Policy in Peking.
Maldivian and Australian experts’ outlook on the Belt and Road Forum
China Radio International | 12 May
The United Nations General Assembly, the UN Security Council and APEC have all incorporated or reflected Belt and Road cooperation in their resolutions and documents.UN Secretary-General Antonio Guterres now says the Belt and Road Initiative is a demonstration of new vision that China has brought to global development, which can help address global problems and enhance international cooperation. For more on this, CRI's Suyi is now joined on the line by David Kelly, Research Director of China Policy, a research and strategic advisory based in Beijing, also a visiting professor of sociology at Peking University.
China encircles the world with One Belt, One Road strategy
Financial Times | 5 May
The fear that Obor is a vehicle for Beijing to increase its political influence abroad could also create a backlash. Australia declined an opportunity to embrace the initiative formally last month — following its ally the US, which has also kept a clear distance. (New Zealand, however, did not have such objections.) “There is increasing buy-in from other parties but [Beijing] has got to overcome the political minefields,” says David Kelly, head of research at China Policy, a Beijing consultancy.
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