monthly roundup

A surprise currency devaluation and another jolt in local equity prices sent jitters through peripheral currencies and global markets. Doomsayers would be wrong to see portents of downfall in either. The popped stock market bubble and weakened RMB demand are symptomatic of deferred structural transition. The consequent slowdown, long in the making, is hardly news.

Contrary to much analysis, the reform agenda has not been forgotten. In a month of progress on key fronts, State Council approved two measures intensely debated since before the current administration. One will pool and invest pension funds nationally. The other will allow farmers to mortgage their land and homesteads. In another move, PBoC removed the interest rate ceiling on deposits longer than one year.

A race against time—against looming default, deflation, and spreading employment shortfalls—reform also has long lead times. A green light at the centre does not guarantee provincial implementation. In the near future, we expect more turbulence and more stopgaps, like the additional 1.2 tn swap of local government debt approved at the end of the month.

featured analysis
community of shared destiny

rhetoric makeover heading for Washington?

A self-confident Xi Jinping 习近平 is no longer ‘hiding and biding’, pronounced a 15 August 2015 news report. This ‘remoulding’ of Deng Xiaoping’s 邓小平 famous maxim was rapidly echoed across the media, reinforced by the military parade on 3 September. Featuring prominently in the report was ‘new-type great power relations’, a rhetorical gambit initially floated in 2012 and made official in 2013 on Xi becoming General Secretary. Xi framed his first visit to the US in 2014 as such ‘new-type’ relations in action. The world, not least the US, was hard put to interpret, let alone accept it. How Xi’s advisors will package his September 2015 state visit to Washington becomes a puzzle. full post open access →

policy movers

can’t put a name to the face? go to page footer

1. In the Politburo I oversee rural work, agriculture and water resources; in State Council I’m the third-ranked Vice Premier, covering commerce and tourism. I co-chair the US-China Strategic and Economic Dialogue. My vitae is impressive: a former Communist Youth League leader, NDRC vice-minister during the WTO accession, I ran Chongqing, an inland powerhouse, and Guangdong, a coastal one; there is even a governance model named after me. In the 1980s, Deng Xiaoping visited the city in Anhui where I was Mayor, and was impressed. Few can stand in the way of my ascent to the Politburo Standing Committee in 2017.

2. A Xinhua veteran and former PR advisor to Wen Jiabao 温家宝, I now serve as Leading Group for Cyberspace Affairs director. Representing the new face of propaganda and information control, I swap ponderous Marxist discourse for aphoristic aplomb, bluntness and swagger. My leading group is charged with implementing Xi’s censorship regulations. Concerned chiefly with cyber-sovereignty and IT innovation, it wields its authority mainly by filtering online information and controlling social media accounts. My stocks will rise when the Cybersecurity Law is passed: article six bestows sole responsibility for coordinating all cyberspace security efforts on my leading group.

3.Combining spun-off NDRC departments with the former industry and information ministry, I usually live in the shadow of NDRC, issuing technocratic industry regulation but seldom sculpting macro-economic plans. That changed this summer, with my debut release of an industrial cluster plan that aspires to revive manufacturing and spur SME growth. I may have bitten off more than I can chew, though—I cannot afford to implement the policy, and lack the political clout to instruct banks where to lend.

consumer finance


intelligent manufacturing clusters

MIIT’s 23 July plan to build 100 intelligent SME clusters around established firms encourages SMEs as innovators and manufacturing hubs in their own right. The plan marks MIIT’s debut as driver of macro-policy, but reveals its limitations. Securing funds — SMEs’ biggest constraint—lies beyond MIIT’s remit or political clout.” full signal client access →

mid august position:

  • green and red lights for internet finance: the rhetoric supports it, but PBoC prefers control

end august position:

  • SOE reform plan delayed 17 months: due end August

Wang Yi and John Kerry
Wang Yi 王毅 helps broker the Iran nuclear agreement link


back to big-power school

The Iran nuclear agreement was hailed in China as a mark of rising influence. Was there a downside, however, with the US now freed to wield influence further east? Or was this not, in fact, an upside, with a refocused US now an asset in the much tougher DPRK problem. full signal client access →

mid august position:

  • fence mending rises on foreign policy agenda: with the US decline on hold, moderates are encouraging rapprochement with neighbours

end august position:

  • muted response to Abe’s end WWII speech: are domestic worries overwhelming?

Beijing cluster

social policy

modernising Byzantium: the Beijing cluster

Centrally-planned regional upgrade aspires to offset economic slowdown and climate change in one move, achieving national showcase status. Among multiple objectives, dismantling provincial protectionism while boosting regional integration and cooperation rank high. The June 2015 Coordinated Development Outline details planned transport corridors, activity zones and environmental protection. full signal client access →

mid august position:

  • implementing pension pooling and investment: investment returns, local liquidity impacts and Shandong defiance hover over coming plans

end august position:

  • streamlining and tightening drug approvals: expect higher standards, more competition

agricultural reform
clearing the way for agricultural reform link

agriculture and marine

realigning farm subsidies

Low international prices are propelling agricultural imports into China’s markets, while expensively-procured local grain rots in state reserves. With ever mounting reserves and galloping costs, redirection of subsidy programs is rising on the 2015 rural agenda. full signal client access →

end august position:

  • MoF and NDRC pushing agri reform: VAT resumes on fertiliser to rebalance production

tax bureau
draft EPT Law promotes switch from arbitrary fees to tax

energy and environment

ecotaxes to be tougher on polluters

The shift from arbitrary pollution-control fees to a tax framework signals China’s strengthening response to polluters. The draft Environmental Protection Tax Law (EPT Law) released 10 June by MoF, SAT, and MEP also points to a transition from a whack-a-mole approach through administrative decrees, to legal frameworks allowing for rational arbitration of interests. full signal client access →

mid august position:

  • Beijing cluster air pollution: grand top-down efforts to fight pollution will need more local buy-in

end august position:

  • lifelong accountability for environmental damage: can the environment trump GDP?

Budget Law Implementation
MoF’s draft Budget Law Implementation Regulations disregard role of other agencies in budgetary process

governance and law

mid august position:

  • MoF consolidating clout with Budget Law implementation: promised gains for other agencies set back

end august position:

  • cyberspace sovereignty: state power tightens around online discussion in name of national security

policy ticker highlights

pension fund to invest in stock market
Caixin | 26 august
Pension funds now have the green light to invest in new channels. A new organisation under State Council will invest up to 30 percent of the nation’s pension funds in the stock market.

streamlining the medical approvals process
Economic Information | 18 august
State Council has issued an ‘Opinion’ on reforming the assessment and approval system for medical drugs and equipment.

officials accountable: specifics on green responsibility
National Business Daily | 17 august
Local Party and government officials will be held accountable for environmental damage from 9 August, according to a measure released by the Central Committee and State Council.

remoulding ‘hiding and biding’
China Radio International | 15 august
Setting the tone for President Xi Jinping’s 习近平 US visit next month, a widely-reposted article from China Radio International on 15 August provides a round-up of the Xi administration’s diplomatic achievements.

fertiliser VAT to resume
Ministry of Finance | 10 august
A 13 percent value-added tax on fertiliser, exempted in 1993, will resume from 1 Sept 2015 states a notice from MoF, Central Administration of Customs and State Administration of Taxation.

implications for China on cybersecurity
Financial Times Chinese | 4 august
Tan Youzhi 檀有志 UIBE explores the domestic and international implications for China following its 6 July release of the draft Cybersecurity Law.

selected texts of the month (clients only)



social policy

agriculture and marine

energy and environment


centralised drug procurement
医药集中采购 yīyào jízhōng cǎigòu

with few exceptions, hospitals buy drugs from a list of items approved by their provincial government. Bidding for inclusion is managed by a procurement agent­­­­, usually a government-established firm. Bidding competition and price ceilings help drive down prices. Manufacturers and hospitals are, however, adept at finding ways collude in price-fixing after the bidding winds up

homestead plot
宅基地 zháijīdì

rural land earmarked for household residences. Ownership is retained by rural collectives; families enjoy usage contract rights. Sale, lease or transfer to non-rural residents is forbidden under the Constitution. The 2014 3P proposes allowing market transactions. Many pilots experiment with aggregating these plots for development. An August 2015 decision will allow farmers to mortgage their land and homesteads link

in the media

China’s bumpy ride along the new Silk Road
The Australian | 29 aug
Benjamin Herscovitch, research manager at Beijing-based China Policy, says that “as well as sensitising the domestic audience to the ‘new normal’ of 3 per cent to 6 per cent growth, the Communist Party is busy softening the blow of the slowdown” and the “Silk Road” stimulus program will play a big role.

He says this will “bankroll the sale of Chinese technology and expertise — from Chinese solar plants in Pakistan to high-speed rail in Britain. And the hundreds of billions of dollars the party has at its disposal to fund this is just a fraction of the financial firepower at its disposal”.

What China (did not) to do to contain the drama [Portuguese] | 27 aug
“The performance of stock markets is of little importance in the Chinese economy, which is slowing gradually, but within expectations. At some point, contraction may mean systemic risk for the financial sector, because banks are exposed to some degree. But estimates vary as to what point this is”, said Philippa Jones, Charles Horne and David Kelly, directors of consultancy China Policy.

China’s New Economic Reality
The Globe and Mail | 17 aug
“There’s been a whole lot of positive inducements to try to encourage the growth of services, the growth of small and medium enterprises. But there hasn’t been any real significant cutting away of the state sector and the administrative privileges and special access to finance they have,” said Charles Horne, the economy portfolio manager at Beijing research and advisory firm China Policy. “It’s been stalled because there’s a lot of vested interests.”

quiz answers: 1. Wang Yang 汪洋 Third Vice Premier 2. Lu Wei 鲁炜 Central Leading Group for Internet Security and Informatisation head 3. Ministry of Industry and Information Technology 工业和信息化部

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