October: old dreams, new solutions
The much anticipated Sixth Plenum wrapped up, with Xi becoming the first incumbent Party chief to crown himself 'core'. Within a few days, his affiliates occupied key posts, with his doctrine aired at even higher frequency. Yet it remains to be seen whether this is a total victory, given a sweeping ban on any 'cult of personality' was also inserted into the final Communique.
Philippines president Duterte visited Beijing, dismissing the historic US-Philippines alliance, though this was later tempered in Japan, where he told Abe engagement with China was purely ‘economic’. These talks followed Xi’s visits to Cambodia, Bangladesh and India. Hailed by domestic media, the tour continued the diplomatic coups of recent months, through which China claims leadership of the developing world. The China Solution, a new rhetorical gambit for Chinese-style global development, is now absorbing many of its predecessors: Belt and Road, Capacity Cooperation and AIIB.
Before the Plenum, Xi stressed Party command over SOEs. In response, SASAC institutionalised supervisory boards in SOEs to prevent asset loss, marking the agency’s shift from managing daily operations to overseeing capital. Officials reiterated central SOEs must reduce overcapacity by ten percent in two years, and shut down 345 zombie subsidiaries in three. State Council moved on enterprise leverage, releasing guidelines encouraging mergers and acquisitions, bankruptcies and debt-for-equity swaps. It also approved an NDRC-led interministerial joint conference system to tackle the issue and organise swaps. Beijing's ability to enforce its will, however, is in question, with major cities erecting hurdles for newly legalised ride-hailing company Didi; perhaps another case of growing ‘soft resistance’ to central policy.
The 5-year plan for agricultural modernisation sets future direction, moving agriculture beyond self-sufficiency to global expansion. Central government plans to grant 100 million people urban hukou by 2020, addressing an 18 percent gap between those registered and the actual urbanisation rate. The plan is aimed at long-term urban residents in medium and large (but not mega-) cities, allowing them full urban benefits and compensation for giving up rural homestead plots, while boosting infrastructure to make cities more attractive.
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First held in 2012, the annual Moganshan forum commemorates a 1984 meeting of young economists who shaped China’s market reforms. full post open access →
october policy movers
policy professionals in and out of the establishment
Shen Jianguang 沈建光 | Ruisui Securities chief economist
Previously at the European Central Bank and IMF, Shen advocates restructuring the economic regulatory framework. Since 2013, he has called for a simplified system that meets international norms. PBoC should take over from regulatory commissions on securities, banking and insurance, says Shen, to unify financial regulation, eventually becoming a real central bank responsible for overall monetary policy. NDRC ‘flexibility’ in approving investment projects, at odds with fiscal restraint, is a major source of overcapacity, overheating and mounting debt, he says. The solution is to put project certification and state-owned assets under the Ministry of Finance, says Shen, creating a ‘super ministry’ to manage and overhaul the fiscal system as a whole.
Tian Guoqiang 田国强 | Shanghai University of Finance and Economics (SUFE) School of Economics dean
Supporting Zhang Weiying 张维迎 in his debate on industrial policy with Justin Yifu Lin 林毅夫, Tian argues for a smaller government, calling for market liberalisation and an open intellectual sphere to foster informed policy debates. Government made the right noises in announcements during the third, fourth and fifth plenums, says Tian, but conflict over the direction of reform, both among academics and officials, is limiting progress and causing stagnation. SUFE School of Economics dean since 2004, Tian also set up and runs an advanced research centre focused on economic crises, educational reform, the three rurals and environmental governance. Shanghai municipal government policy council member and State Council Development Research Centre International Technology and Economics Research Centre advisor, Tian was named one of ten most influential mainland Chinese economists by Wall Street Wire in 2005.
Chen Yingfang 陈映芳 | Shanghai Jiao Tong University School of International and Public Affairs
An expert on urbanisation in the Shanghai area, Chen is a proponent of integrating urban and rural hukou to overcome discrimination towards the lower class. Hukou policies artificially inflate real estate demand, argues Chen, as young migrants seek apartments in large cities to gain hukou there while parents prepare backup housing in hometowns. This, Chen argues, has tied up too much household income in real estate, lowering consumption of other goods and increasing risk of social turmoil should the market crash. Many rural migrants, meanwhile, shelter in unsafe shantytowns on urban peripheries, says Chen, a practice condoned by local governments as it relieves them of their social services burdens. As private housing is increasingly considered a basic right by all urban citizens, argues Chen, it is a state responsibility to provide affordable housing to the urban poor.
policy ticker highlights
gems from our feed of policy releases and domestic debate
finance
functional rather than institutional regulation needed in internet finance
Sina | 25 october
Internet finance is regulated using an institution-based approach that divides up mandates among regulators according to institution type, says Huang Yiping 黄益平 Peking University. This should be replaced by functional regulation, argues Huang, where regulatory oversight is based on business operations. Given that most internet finance firms carry out more than one type of business activity, an integrated approach is more suitable than the current system, where PBoC is responsible for third-party payment platforms, CSRC has oversight over crowdfunding, CSRC regulates P2P lending and CIRC oversees insurance funds and firms, says Huang. Huang recommends
internet finance be subject to the same regulatory framework as traditional finance
raising the bar to entry for institutions conducting internet finance
improving information security in internet finance
trade and industry
seven new FTZ plans almost ready
China High Tech | 24 october
The third batch of free trade zones (FTZs) needs to build on experience of the original four, focusing on ‘replication’ and ‘innovation’, emphasised experts at the 2016 China University FTZ Research Alliance annual meeting at Fudan University. Detailed plans for the seven new FTZs are almost complete and will be released in a joint press conference shortly, according to insiders.
The new FTZs need to follow international norms, while also finding intersections between local advantages and global economic realities, says Zhang Jianhua 张建华 Huazhong University of Science and Technology professor, stating they should not just focus on competing against non-FTZ localities in attracting domestic enterprises.
All FTZs, whether on the coast or inland, face difficulties in how to give play to the decisive role of the market, notes Zhang. While China’s FTZs have achieved some preliminary successes, adds Tong Jiadong 佟家栋 Nankai University vice president and Nankai FTZ Research Centre director, they still need to focus on refining management systems, setting up an improved market economy, and clarifying central-local responsibilities.
The 11 FTZs need to set up a national network to form unified institutional arrangements, especially unified market and management institutions, adds Xiao Linze 肖林则 Shanghai Municipal Government Development Research Centre director.
geopolitics
resisting interference in the SCS
Xinhua | 23 october
Winding up his recent China visit, Philippines President Duterte declared that bilateral relations were back on a cooperative path; both sides agree that territorial and jurisdictional disputes over the South China Sea (SCS) should be settled peacefully by negotiations between the countries directly involved. Friendly relations, he said, are also the aspiration of ASEAN countries.
Some countries, however, are unwilling to see this, comments Xinhua, noting the USS Decatur, a guided-missile destroyer, recently carried out ‘freedom of navigation’ actions around the Xisha (Paracel) Islands in the SCS. Chinese naval ships immediately carried out identification and verification, reports the new portal, warning the US away. Again, high-ranking Japanese officials state that the way China and the Philippines shelve the controversy ‘is likely to be in contempt of the international decision; Japan will keep urging the Philippines to respect the interim arbitral ruling’.
The US fabricates tensions in the SCS, says Xinhua. Japan is a non disputant, says the portal, yet nonetheless make an issue of the arbitration ‘farce’, at odds with SCS regional states’ desire for peace and cooperation.
governance
central authority damaged on ride-hailing rules
Caixin | 11 october
Proposed municipal ride-hailing regulations, released 8 October 2016, go against the direction of a July central document, with many questioning Beijing’s ability to enforce its will.
Calling it a typical case of ‘soft resistance’, Liu Yuanju 刘远举 Shanghai Institute of Finance and Law says cities are exploiting a loophole in the July document which give them discretion to determine the technical details of ride-hailing regulations, threatening to render it irrelevant. This will be imitated nationwide, he warns, if central authorities allow localities to push ‘discretion’ to such extremes. If they are unable to deliver on urban passenger transport, authorities may lose credibility on more significant issues, argues Liu.
Looking back at how the Ministry of Transport shifted its tone on ride-hailing since 2015, Zhou Dongxu 周东旭 Caixin suggests another possibility: the Ministry did not change its hostile attitude towards firms like Didi and Uber, but only its tone. Ceding the bulk of rule-setting to the cities allows them to be painted as villains in the saga, argues Zhou. But whatever happened behind the scenes, says Zhou, the back-and-forth on the issue not only breaks promises of devolution and transparency, but fundamentally undermines government credibility as a whole.
society
state worries about rural land reform unwarranted
Caijing | 11 october
The current Land Management Law, which came into effect in 1998, dictates that rural construction land has to fulfill state-designated functions, with homestead land to be used for housing purposes and collectively managed land to be occupied by collective rural enterprises, explains Zhenyuan 郑振源 former Ministry of Land and Resources department of land management planning bureau director. This limits transfer of homestead land usage rights, and gives the government wide power in land requisition and planning, he says, leading to rampant corruption in land appropriation, the impoverishment of peasants, and low efficiency in urban land usage.
About one third of the urban construction land converted from rural land has been given to local governments for free, says Zheng, a gesture that led to the proliferation of wasteful ‘image projects’. The other two thirds have been either sold to factories at a discount or to real estate developers at exorbitant prices, he says. Driven by high land prices, developers have been compelled to build high-end luxury apartments with large profit margins, says Zheng, while ignoring the needs of the low-income groups. At the same time, large stretches of industrial land have been left underutilised or unused, says Zheng.
The result speaks to the flaws of the current land management approach, says Zheng, arguing the fears that have led the government to take such an approach are largely unfounded. If rural land could circulate freely in urban markets, it would increase land supply for low-rent and affordable housing, says Zheng. But urban land’s encroachment on farmland would be limited, he argues, for the market would reach an equilibrium once demand for low-price housing is satisfied. Furthermore, China has 2.025 bn mu of arable farmland, well above the red line of 1.8 bn mu, he points out, arguing marketising rural construction land will not pose a threat to farmland reserve.
agriculture
cautious approach in agricultural modernisation
Quishi | 15 october
Agricultural reform has gained new significance and goals, says Tang Renjian 唐仁健 newly appointed Rural Affairs Leading Group Office director, noting a shift from just ensuring sufficient supply to ensuring food safety, sustainable products, stable prices, farmers’ income, resources and protecting the environment. Agriculture and rural areas are still the weakest link of the ‘four modernisations’, however, and agricultural reform is still far from complete, says Tang, citing weak and unstable production capacity, and rural-urban divide in infrastructure, basic services and income, with 55.75 million rural residents suffering from poverty.
Rural land reform and the relationship between peasants and land, Tang says, is a key point of agricultural and rural reform, recommending adhering to collective ownership of rural land, family management of land and land contracting, and building stable land contract relations and orderly rights transfer markets that protect peasants. Improving rural quality of life is also crucial, he says, with programs to build a new ‘beautiful countryside’ critical, along with better education, health, cultural and social services.
Grassroots Party organisations in rural areas are key to agricultural and rural reform, says Tang, calling for improving training of young Party members, expanding Party organisations’ coverage and increasing organisations’ effectiveness and cohesion. Tang further calls for enhancing community-based governance and improving villagers’ self-governance.
lexicon
short, graphic explanations of trending technical terms and jargon
hollowed-out villages 空心村 kōng xīn cūn
When most young people have migrated to cities, remaining villagers prefer to live in new buildings on village borders, leading to empty and ageing centres and more populated peripheries. The government estimates one quarter to one third of rural villages are affected, wasting 114 million mu of rural land, spreading social services thin, and reducing social cohesion. The problem persists due to poor spatial planning and complicated and inflexible rural land usage rights, especially for homestead land.
china policy in the media
mentions of our work elsewhere
China rumored to impose anti-dumping tariffs on soybeans
KTIC | 3 october
According to Erlend Ek of the advisory firm China Policy, Chinese soybean farmers have suffered in recent years due to poor domestic support. New policies aimed to correct these problems are being planned, but have yet to take shape. As a result EK thinks China may feel it necessary to introduce 'some short term protection to the domestic sector,' he told Bloomberg 'although it would likely resist doing so.'
China ag readies reform amid $450B commitment
Global AgInvesting | 10 october
Erlend Ek, agriculture and marine manager at China Policy, explains to GAI News the way the capital will be divided: first to market-friendly institutions that will support a completely new agriculture system for futures trading, second to financial institutions such as lenders and lastly, insurance companies. This transformation, particularly toward a more structured futures market for agriculture commodities trading, reflects China’s shift in focus from a domestic approach to one that is more global in nature.
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