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.
From the Two Sessions to the Boao Forum for Asia, resolve is growing to resist monetary easing. Policymakers are targeting asset bubbles, inflation expectations and systemic risk. Deleveraging the non-financial sector, another focus, may be undermined by a reluctance to let SOEs fail. Government reduced the annual GDP growth target to 6.5 percent in its work report, and signalled an industrial policy focus on supply-side reform, de-capacity, free trade zones, car emissions, zombie enterprises and consumption.
When the government gutted public hospital funding in the 1980s and ‘90s, institutions moved to pharmaceutical drug markups to fill revenue gaps. A 2006 move to cap markups at 15 percent at major hospitals only made things worse, with doctors prescribing more, and more expensive, medicines to cover shortfalls and plump up bonuses. With misaligned incentives, these drug-addicted hospitals are blamed for pushing up healthcare costs, harming public health, and driving local health insurance funds to the brink.
Money is getting tighter, says Shen Jianguang 沈建光 Mizuho Securities chief economist, Government targets left a small two-percentage-gap between the growth of M2, the broad money measure, and that of nominal GDP, says Shen, pointing to the five-percentage-point gap in 2016. A series of People’s Bank of China (PBoC) open market operations (OMO) resulted in winning yields for repos and medium-term lending facilities; both moved up by 10 basis points, having already increased by 10 points at end January and beginning February respectively.
The 2017 Two Sessions saw several proposals aired to boost the birthrate: baby bonus, state subsidies, lower legal marriage age, and higher childbirth insurance. Since the one-child policy ended late 2015, responses have been underwhelming, reports Economic Observer, with most families foregoing a second child on cost grounds.
Agriculture is likely to emerge as the largest source of pollution by sector as better monitoring comes on stream, according to the Research Centre for Rural Economy. Production may be better guided by consumer choices, it urges. Green, organic and non-polluting product labelling is developing well, reports the Ministry of Agriculture (MoA). Meanwhile, experts fault the livestock industry, calling for a shift to large-scale, intensive production to address food safety and environmental issues.
As with many top-level policy documents, the Cybersecurity Law is vaguely worded, with subsequent directives and regulations signalling priorities. These show the Party’s commitment to creating a ‘harmonious’ online environment in a period of political transition (2017-18). Longer-term plans, such as setting up a cybersecurity review mechanism, will be carried out in a more regular manner in line with strategic policy documents such as the 13th 5-year plan and ‘Made in China 2025’.
Severing trade associations from corresponding regulatory agencies is difficult due to a lack of legislative guidance. Yet the abrupt appointment of Yao Ming 姚明 to chair the Chinese Basketball Association (CBA), and withdrawal of the General Administration of Sports from micromanaging it, has restored confidence in the embattled devolution initiative, given Yao is pointedly a civilian leading a commercial organisation, rather than ‘an official’.
economy: H7N9 overshadows food safety, pushing steel de-capacity, soothing fears over capital controls
The closely linked 5-year plans for food safety and for pharmaceuticals were launched, laying out a new safety blueprint. China Food and Drug Administration called for comment on new regulations for online food and drink services, deleting a line from the 2015 draft on protecting consumers’ personal information.