Eyeing globalisation via B&R, the finance sector produced a financial globalisation roadmap shortly before the Belt and Road Forum (14–15 May 2017). State-led development finance will still dominate in mega infrastructure projects with massive funding needs and extended payback periods. In case of stronger commercial viability, commercial banks are urged to step in, complemented by the equity investment-driven Silk Road Fund.
governance: Belt and Road Forum, more autonomy for hospitals, tightening security in lead-up to congress
The Belt and Road Initiative is swiftly becoming a measure of China’s global standing. Participation in the inaugural Forum (14-15 May) rivalled any UN meeting, with senior delegates from over 100 countries and heads of major UN agencies. Planners highlight integration with the UN’s sustainable development agenda. Risks faced by SOEs are manageable, Xiao Yaqing 肖亚庆 State-owned Assets Supervision and Administration Commission chair claimed some days before the Forum. Yet, warns think tank Pangoal Institute of Macroeconomics, doubts remain as to the risk-benefit ratios of major projects.
Government is shifting to a more granular urban development model, focusing on small cities and towns. But, while commanding considerable investment and focus, there are, notes Qiao Runling 乔润令 National Development and Reform Commission (NDRC) China Centre for Urban Development, ‘too many examples of failure’, with development plagued by poor governance and planning.
China has been the world’s largest market for eight years. In Q1 2017, domestic players held 45.7 percent of a market that sold 28 million cars in 2016. But automotive leadership requires quality products, first-rate R&D and international competitiveness, advises the Ministry of Industry and Information Technology’s ‘Automobile industry mid- to long-term development plan’. Gradually lifting the shareholding restrictions on foreign investment (currently limited to under 50 percent in JVs) is also under discussion.
Preparations are in full swing for the Belt and Road Forum, Beijing 14-15 May. The list of 28 government leaders includes major partners in southern and eastern Europe, South and Southeast Asia, and Russia’s Putin. Due to elections or low Belt and Road profiles, of the G7 leaders only Italy will be present, dampening the mood. As well as consensus-building and specifying action plans, Beijing hopes to boost its image as global governance leader: a soft power win.
The Trump-Xi summit reassured Beijing it can work with this administration, but Trump’s strikes on Syria raised the spectre of unilateral US action towards North Korea. With the threat of a new nuclear test looming, Beijing is preparing for new sanctions, foreshadowing a possible halt of crude oil exports. In the run-up to the Belt and Road Forum, some domestic commentators are playing up successes, but others doubt the viability of projects such as the Gwadar port.
‘Just roll up your sleeves and do it!’, Xi Jinping 习近平 urged officials in his 2017 new year address in February, seeking to inspire the Party-state bureaucracy in carrying out central directives. While the official tone is upbeat, frustrations with reform stagnation are mounting. In his 2017 government work report, delivered in March, Premier Li Keqiang 李克强 warned governments and officials at all levels that implementing central policy does not mean ‘holding more meetings and issuing more documents’, pushing paper and paying lip service to reform.
economy: RMB flexibility climbs the agenda, healthy Q1 performance, special production areas defined
The National Bureau of Statistics was quick to attribute better-than-expected Q1 GDP growth of 6.9 percent to more sustainable drivers such as stronger consumption and improved industrial performance. However, the market remains fixated on investment growth. Infrastructure and real estate investment still dwarfs that in the manufacturing sector, suggesting that unsustainable quick fixes continue to prop up the economy. The government’s plan to control liquidity and deleverage the economy may be the vehicle to wind back investment-driven growth.
A mixed win for Beijing, the Trump-Xi summit saw them make friends, and ease concerns for Xi in the run-up to autumn 2017’s Party Congress. After Trump’s decision on Syria, the threat of preemptive US strikes on North Korea is taken more seriously. Global Times warned that China could curtail oil supplies, signalling accommodation of US pressure. A peaceful solution and dialogue between the US and North Korea remains Beijing’s mantra.
Destocking, a focus of supply-side reform, rushed ahead in 2016. With credit cheap, buyers pounced: housing inventory fell by 3.2 percent nationally. But as prices rose, state priority shifted to curbing asset bubbles, above all in higher-tier cities, and, as mortgage growth surged, managing banking sector risks. Lending and purchasing restrictions cranked up across a swathe of tier-1 and -2 cities in October to cool markets and limit speculation. This drove hot money down to lower-tier cities.
economy: Xiongan New Area and new FTZs unveiled, agricultural imports skyrocketing, liquidity concerns
Announced on 1 April 2017, the Xiongan New Area (XNA) is supposed to take on Beijing’s non-capital functions, spur coordinated growth and integration across Jingjinji, and counterbalance the dominance of Beijing and Tianjin.
governance: Party rolls up sleeves and waits, housing heat shifts tiers, China to make America great again
Following the pomp of the NPC meeting, Party insiders are more openly frustrated with Xi’s stagnated reform agenda and what they regard as official inertia. Huge pressure is falling on officials’ shoulders, admit Party scholars; a few blame the anti-corruption campaign itself.