October: 4th Plenum, South Pacific, RCEP
October was bookended by major political events, beginning with a triumphant military parade on the 70th anniversary of the PRC and ending with the long-anticipated fourth Plenum. The plenum focused more on politics than policy, revolving primarily around modernising governance. But reforms run up against commentators insisting that upgrading political capacity will not result in the Party ‘sacrificing principles, losing orientation, or taking the wrong path of changing the flag’.
In addition to major political events at home, Xi Jinping was busy managing foreign affairs, juggling ongoing US-China negotiations with visits to India, Nepal and Brazil amid a row with Australia. Beijing was also active in the South Pacific, sending a 250-member delegation to the third China-Pacific Islands economic and development cooperation forum following Kiribati and the Solomon Islands’ recognition of the PRC instead of Taiwan at the end of September.
Xi and Indian Prime Minister Modi made progress on RCEP negotiations in their meetings, part of a larger turn towards regionalism in response to global trade challenges. In an effort to help attract FDI, the State Council approved a draft regulation on improving the business environment. Despite being portrayed as a milestone in mainstream domestic media, the measure largely builds on previous reforms and doesn’t signal a major shift.
Q3 economic data showed a continued slowdown. The State Council revised tax collection, giving consumption taxes to localities in an effort to both resolve local government budget challenges and motivate them to support consumption. Frontloading of 2020 special bonds has increased long term financial risks for local governments overstating or fabricating cash flows.
The Politburo surprised markets on 25 October, skyrocketing the price of bitcoin with a study session on blockchain technology. Ministry of Industry and IT also announced a major new C¥204 bn fund for the integrated circuit industry, and Ministry of Science and Technology launched 2020 national key R&D projects, opening applications for C¥7 bn in funding. The 2021-35 NEV industry development plan was also leaked after its call for comment period, drawing attention for its goal to make NEVs 20 percent of car sales by 2025 and 40 percent by 2030.
As winter approaches, the Ministry of Ecology and Environment released its Jing-Jin-Ji air pollution and heating plan. More ambitious than the 2018-19 iteration but less stringent than a draft from September, the plan drops staggered production controls. NDRC also released its plan to link coal and power prices following a 26 September State Council announcement, meant to resolve conflict between rising coal costs and state-set power prices.
Ministry of Agriculture and Rural Affairs announced it will soon ban fishing along key stretches of the Yangtze river. It also revised outdated plant phytosanitary regulations, introducing stricter rules on epidemic monitoring and control in response to growing risks of cross-province transmission and introduction of epidemics from overseas.
The National People’s Congress heard a report from the first inspection of Higher Education Law implementation since it was passed 20 years ago, highlighting insufficient staffing, poor development of Party organisations, regional inequality, and mismatch between graduates’ skills and market demand. Wang Chen 王晨 NPC Standing Committee vice chair called for amendments to the law.
october policy movers
policy professionals in and out of the establishment
Cao Wenxuan 曹文宣 | Chinese Academy of Sciences academician, ichthyologist
The first to call for a Yangtze River fishing ban ten years ago, Cao warned that overfishing and resulting ecological deterioration threaten ‘water security’. He favours a ten-year ban: long enough to cover three breeding cycles and allow fish levels to rebound. Diesel subsidies for fishing boats are the greatest policy distortion, Cao argues, encouraging fishermen to stay when they should leave the sector. Cao also urges cracking down on power stations along tributaries, as disorderly water control has drastically damaged river ecosystems.
Huang Qifan 黄奇帆 | National People’s Congress Financial and Economic Affairs Committee vice chairman
Beginning his political career in Shanghai, Huang was mayor of Chongqing from 2010-16, including two years under notorious Party strongman Bo Xilai 薄熙来. Now vice-chairman of the Financial and Economic Affairs Committee, he also serves as executive vice president of the China International Economic Exchange Centre. An early champion of the ‘three zeros’, he staked his reputation as a reformer to argue that China will struggle to execute the ‘going global’ strategy without them.
Huang Rufang 黄如方 | Chinese Organisation for Rare Disorders president
Huang co-founded China Dolls in 2008, an NGO for people with rare genetic disorders affecting bone development, before setting up the Chinese Organisation for Rare Disorders (CORD) in 2013. In 2018, he became one of 12 founding members of the Global Commission to End the Diagnostic Odyssey for Children with a Rare Disease, representing patient advocacy groups. He urges patient participation in rare disease treatment, lamenting that CORD is only able to recruit volunteers for clinical trials. More patients should be able to take part in every stage of drug development, Huang argues. He welcomes innovative treatments such as genetic therapy, but acknowledges ethical concerns must be addressed.
policy ticker highlights
gems from our feed of policy releases and domestic debate
geopolitics
China, India working together to reach RCEP deal
Yicai | 13 October
context: Xi Jinping visited India 11-12 October and held an informal summit with Indian Prime Minister Narendra Modi. High on the agenda was the Regional Comprehensive Economic Partnership (RCEP) negotiations. China wants the RCEP to be signed by the end of this year, but India’s attitude has been a major roadblock to the deal’s conclusion.
China and India have agreed to speed up RCEP negotiations, according to Yicai, enabling the deal to be signed by end 2019.
At the Chennai informal summit, Xi and Modi agreed to support the rule-based multilateral trade system and make a joint effort to complete RCEP negotiations.
Xi’s visit may help solve the most difficult part of RCEP negotiations, especially India’s concerns over the deal, says Zhang Mei 张梅 China Institute of International Studies.
RCEP is the most important issue between China and India, says Lin Minwang 林民旺 Fudan University Institute of International Studies, because India’s stance is of utmost importance to the future of the talks.
According to Shen Minghui 沈铭辉 Chinese Academy of Social Sciences Centre for APEC and East Asian Cooperation, RCEP will facilitate trade between China and India, which have not joined the CPTPP and do not yet have bilateral trade agreements.
Zhang Mei predicts that most substantive talks will be completed by the end of 2019.
Xi and Modi agreed to set up a high-level dialogue to promote balanced trade. They also agreed on a ‘manufacturing partnership’. Xi invited Indian pharmaceutical and IT firms to invest in China.
India has been concerned about China’s trade surpluses, but after Xi’s visit, says Zhang Mei, China will take some measures to balance bilateral trade.
governance
Politburo meeting announces dates for 4th Plenum
People's Daily Online | 24 October
context: Many in Party and government circles will welcome this long-awaited announcement of the actual dates for a meeting first mentioned in August. Perhaps most striking about the statement is that the delay in confirmation may have been because of continuing disagreement about the precise agenda.
Xi Jinping presided over a 24 Oct 2019 Politburo meeting that decided that the Fourth Plenary Session of the 19th Central Committee would be held in Beijing from 28-31 Oct 2019. Politburo members listened to a report that had solicited opinions on
upholding and improving the socialist system with Chinese characteristics
promoting modernisation of the national governance system and governance capability within and outside the Party
Members decided to modify the draft according to the opinions discussed at the meeting and submit it to the 4th Plenary Session for deliberation. The meeting held that the Party’s democracy should be fully promoted and opinions should be widely listened to. Various suggestions from representatives outside the Politburo, while fully affirming the draft, should be sorted, researched, and pooled so as to formulate an updated document.
The meeting stressed the importance of adhering to the organic unity of the Party’s leadership, and basically realising the modernisation of the national governance system and governance capacity by 2035, consolidating and fully demonstrating the socialist system with Chinese characteristics.
According to Xinhua, the meeting also pointed out that it is a major strategic task for the whole Party to adhere to and improve the socialist system with Chinese characteristics, and promote modernisation. The effort must be carried out under the unified leadership of the Central Committee, with
scientific planning
careful organisation
short- and long-term considerations
overall commitment
Where the socialist system is concerned, Party committees and governments at all levels, as well as leading cadres, should
earnestly strengthen awareness
take the lead in maintaining its authority
set an example in implementation
push the whole Party and society to consciously respect it
strictly enact and resolutely maintain it
finance
economy continues slowing in Q3 2019
Caixin (1), Caixin (2), Caixin (3), Caixin (4), Jiemian (1), Jiemian (2) | 18 October
context: The economy continues to slow in line with market expectations. With a high CPI and slowing GDP growth, fears of stagflation are increasing, but because the high CPI is primarily due to pork price increases based on swine flu, stagflation is not yet a major concern. With the global economy also slowing, policymakers will hold off on stimulus to avoid using it too early, so a massive stimulus is unlikely in 2019.
National Bureau of Statistics (NBS) released Q3 2019 economic data showing that downward pressure on the economy continues. Data shows
Q3 2019 GDP grew by 6.0 percent, down 0.2 percentage points from Q2
Q1-Q3 GDP increased by 6.2 percent y-o-y
January-September 2019 fixed asset investment increased by 5.4 percent y-o-y, down 0.1 percentage point from August
infrastructure investment increased by 4.5 percent y-o-y, up 0.3 percentage points from August
manufacturing investment increased by 2.5 percent y-o-y, down 0.1 percentage points from August
real estate investment increased by 10.5 percent y-o-y, no change from August
private investment increased by 4.7 percent y-o-y, down 0.2 percentage points from August
September total consumer goods retail sales increased by 7.8 percent y-o-y, up 0.3 percentage from August
September national urban surveyed unemployment was 5.2 percent, up 0.3 percentage point y-o-y, but level with August
September industrial added value increased by 5.8 percent y-o-y, up 1.4 percentage points from August
Weak consumption caused much of the GDP growth rate decline, according to Zhang Yiping 张一平 China Merchants Securities macro analyst. Zhang points out that consumption dropped 0.8 percentage points y-o-y, while investment growth only slowed by 0.5 percentage points y-o-y. Meanwhile value added to industry benefited from seasonal effects and optimism about a trade deal with the US, according to Zhang Deli 张德礼 Lianxun Securities senior macro researcher.
Analysts are divided about what Q4 holds. CITIC Securities predicts a slight increase in GDP in Q4 and monetary policy remaining patient with stimulus measures. The group sees Q1 2020 as a critical period for the economy’s future. Lu Ting 陆挺 Nomura Securities China chief economist expects the economy will be stable in October, but that the GDP growth rate for Q4 and 2019 overall will slow to 5.8 percent and 6.1 percent respectively.
trade
China’s role amid new global trade trends
Yicai | 8 October
context: Participation in FTA negotiations benefits China in several ways. First, by shaping global trading rules in strategic and emerging industries. As the WTO enters deadlock, grouping with large economies. e.g. the EU and Japan, may allow China to avoid isolation from the rule-making process. Also, mega-regional trade pacts such as RCEP may reduce the damage of the US-China trade war. And as China moves up the global value chain, it eyes other developing markets to export goods and standards.
China’s evolution over the past 30 years in manufacturing, division of labour and services trade is shaping new global trade rules, says Huang Qifan 黄奇帆 China International Economic Exchange Centre executive vice president. This has also led to the rise of goods’ proportion of total international trade, over 70 percent, with services around 30 percent, Huang adds, noting changes in manufacturers’ management methods have facilitated world-class production and led to control of global industrial supply and value chains.
Realising the Three Zeros (CP note: referring to zero tariffs, zero market barriers, zero subsidies) strategy is difficult under the WTO, as developing or less-developed countries believe it would lead to unfair treatment in global trade, Huang notes.
FTA negotiations could become a way for countries to achieve a Three Zeros policy with limitations, Huang says. If Europe, the US, Japan, Canada and Mexico form an FTA with a combined economic volume that is 50 percent of the world’s total by 2020, this would be tantamount to setting up a new integrated international trade system. China joining this trade system would link it to an international trade body accounting for 70 percent of global GDP, facilitating a Three Zeros-based free trade system.
China should also consider joining the Comprehensive Progressive Trans-Pacific Partnership (CPTPP), as the opportunities presented by the CPTPP echo those made available by the WTO, says Huang. Huang concludes that trade negotiations will impact China’s role in world economic development and lay the foundation for China to become a ‘modern nation’ by 2035 and a ‘strong nation’ by 2050.
agriculture
MARA revises plant phytosanitary regulations, proposes stricter rules
Ministry of Agriculture | 22 October
context: Facing the growing risk of cross-province transmission and overseas plant epidemic introductions, the state is eager to strengthen a top-down phytosanitary supervision and control system. The state will impose stricter rules regarding risk evaluation, licence reviews and cultivation monitoring on foreign-introduced seeds to prevent alien species invasions.
Ministry of Agriculture and Rural Affairs (MARA) is calling for comment on its revised ‘Implementation rules for plant phytosanitary regulations (agriculture-related)’ until 22 Nov 2019 to improve the phytosanitary supervision system.
The system currently faces three major challenges
growing risk of overseas epidemic introductions
increased threats to industrial security posed by domestic epidemics
weak epidemic control capacity
Major amendments include
highlighting monitoring, interception and prevention of major plant epidemics and clarifying implementation responsibilities of local management authorities
strengthening risk evaluation and licence review on foreign-introduced seeds
setting up a classification and management system for agricultural plant quarantine with corresponding management measures
strengthening quarantine supervision of seeds, seedlings and other reproductive materials with sales records and a whole-process tracing mechanism
society
state to stabilise supply and prices of drugs in shortage
State Council, National Business Daily | 11 October
context: These new measures largely follow suggestions outlined in State Council’s August 2019 executive meeting, addressing the shortage of commonly used drugs by pushing production and prescription while suppressing prices. Producers and hospitals could be left with little room to profit. The API production approval systems also remain unchanged, limiting the effects of these measures.
State Council issued ‘Opinions on stabilising supply and prices of drugs in shortage’ on 11 Oct 2019.
Among 3,200 commonly used drugs, more than 200 drugs have experienced a significant price hike this year, reports National Business Daily. Active Pharmaceutical Ingredients (API) monopoly is a major cause, and Shi Lichen 史立臣 frequent healthcare commentator said previous punishments for this were insufficient, considering the large profit API providers gain from monopolies. State Council now pledges to enhance law enforcement. Measures to regulate drug use and support manufacturing are also expected to ease the current crisis.
The opinions call for
increasing sensitivity and timeliness of monitoring on drug supply and prices
enhancing coordinated monitoring
setting up multiple grades of response
setting up different categories of response according to specific situations
managing a list of drugs in shortage
implementing termination of manufacturing reports to deal with possible consequences
improving clinical use of essential drugs
promoting prioritised supply and rational use of essential drugs
improving hospital management and use of drugs in shortage
improving procurement of drugs in shortage
allowing hospitals to procure drugs in shortage on provincial centralised procurement platforms
allowing hospitals to directly procure drugs in shortage from manufacturers if the drugs are not centrally procured or no manufacturers are producing them
ensuring procurement contracts are carried out
enhancing price supervision and law enforcement
enhancing monitoring and warning of irregular changes in drug prices
enhancing long-term drug prices supervision
enhancing law enforcement against illegal practices such as monopolising API
resolving drug price hikes according to specific situations
improving multi-level supply system of drugs in shortage
setting up a long-term storage mechanism
improving production capacity and quality
enhancing API supply
industry and environment
Jingjinji 2019-20 heating season pollution control plan
Ministry of Ecology and Environment | 16 October
context: Compared to the draft, the final heating season pollution plan lowered PM2.5 and heavy pollution day targets, although they are still higher than in 2018. This year’s plan adds targets for coking de-capacity and steel ultra-low emission upgrading, and emphasises the urgency of controlling coal consumption.
Ministry of Ecology and Environment, along with nine other agencies and six local governments, issued ‘Air pollution control plan for Jingjinji and surrounding areas autumn and winter 2019-20’. It specifies
air quality targets for 1 Oct 2019 through 31 March 2020
PM2.5 concentrations to drop by 4 percent y-o-y
heavy pollution days to drop by 6 percent y-o-y
key tasks
upgrading steel, construction materials, coking and chemical industries’ structure, before end December 2019
Tianjin Rochcheck Steel Group to close down one blast furnace plant
Hebei to cut steel capacity by 14 million tonnes, coking capacity by 3 million tonnes, cement capacity by 1 million tonnes, flat glass capacity 6.6 million weigh cases
Shanxi to cut steel capacity by 1.75 million tonnes, coking capacity by 10 million tonnes
Shandong to cut coking capacity by 10.31 million tonnes
upgrading industry clusters
controlling pollution from ‘scattered, chaotic and polluting’ firms
enhancing pollutant discharge permit regulations
closing down unlicenced firms or suspending operations for rectification
enhancing ultra-low steel emissions upgrades
before end December 2019, Hebei to complete steel ultra-low emission upgrade of 100 million tonnes and Shanxi 15 million tonnes
firms will have preferential measures revoked and pollution emergency response performance evaluation rating downgraded if found to be falsifying documents
promoting industrial boiler pollution treatment
starting 1 Oct 2019, coking industry to implement air pollutant special discharge limits
controlling VOCs pollution
launching VOCs pollution inspections before end October 2019
promoting clean heating
before end October 2019, converting 5.24 million households from low-quality to cleaner energy sources
prohibiting switching back to low-quality coal
capping total coal consumption
accelerating construction of railway lines run specifically for large-scale industrial and mining firms and newly built logistics parks
punishing excess vehicle emissions
strengthening non-road mobile pollution sources
optimising land use structure
effectively responding to heavy pollution days, based on ‘Guiding opinions on strengthening heavy pollution response and emission reduction measures’
strengthening infrastructure
science and innovation
Politburo studies blockchain
Xinhua Net | 25 October
context: The Politburo often holds study sessions on emerging technology to signal support. Beijing has accelerated blockchain development with management regulations, industrial research, and financial applications. Market interest in blockchain skyrocketed following the announcement, with Bitcoin jumping from US$7,400 to over US$10,500 on 25 October.
The Party Central Committee Politburo study session on 24 October focused on blockchain technology. Integrated blockchain applications are vital to technology innovation and industry upgrading, stressed Xi Jinping 习近平 Party chairman, adding that it should be a key focus of indigenous innovation. Xi further stated that the state shall
accelerate blockchain technology and industrial innovation development, and promote integrated growth of blockchain and socioeconomic development
strengthen R&D, including
basic research
key technology breakthroughs
standardisation research and global standard-setting power
industry growth
integrated development with other frontier technologies like AI and big data
talent cultivation
improve data sharing, business operations and overall trust with blockchain
integration of blockchain and the physical economy
financing
risk management
regulations
blockchain-based digital economy innovation
‘blockchain+’ public services
education
employment
elderly care
poverty alleviation
healthcare
anti-counterfeiting
food safety
public welfare
social security
integration of blockchain and smart city
IT infrastructure
smart transport
energy and electricity
strengthened interrelationship in information, capital, talent and credit rating
flows of production factors
data sharing across government agencies and regions
improve policy guidance
blockchain security research and analysis
development tracking
security protection system suitable for blockchain technology
establishing responsibilities of industry actors
orderly industry growth
Relevant government agencies should take note of the latest blockchain development trends, improve their capacity to use and administer the technology, and foster its role in overall social, economic and technological development.
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