roundup from our portfolios

‘Targeted’ poverty alleviation, policy mantra of Xi’s administration focused on assisting genuine ‘have-nots’ rather than relying on GDP growth, is gaining airtime. Part of the Party’s pledge to deliver a ‘moderately prosperous society’ by 2020, it was signalled in late July as a key Party Congress focus. Xinhua reinforced the message at end August, publishing Xi Jinping’s 习近平 June speech on the subject. A series of pieces by all provincial Party secretaries and governors in the People’s Daily in the past month reinforces the theme. Also citing poverty alleviation goals, and supply-side structural reform, Deepening Reform Leading Group mooted restructure and integration of agriculture-related funds, with implications for trillions of RMB in annual finance for rural infrastructure, farm equipment subsidies and modernisation projects.

Financial industry regulators are also preparing for the Congress, all three talking up the political value of their routine work. Most eager is the insurance regulator (CIRC), which, in four consecutive news releases, lauded the insurance industry for its steady progress, shaking off its ‘barbaric’ reputation and moving on from the April dismissal of its chief, Xiang Junbo 项俊波.

Cybersecurity continues to crank up, with officials tightening controls on internet activity, enforcing real-name registration rules for online commentators and fining enterprises who failed to comply with its ever-more-severe censorship, including Tencent and Baidu. Part of the political clampdown, Central School of China Communist Youth League, the training ground for top-level Party cadres in the Youth League clique, was merged into the Chinese Academy of Social Sciences, with its campus demolished, as Xi continues to defang the once powerful group.

North Korea’s sixth nuclear test took the sheen off the Xi-hosted BRICS Summit in Xiamen and reignited domestic debate, culminating in a highly personalised attack on Peking University professor Jia Qingguo 贾庆国, who had suggested talks on contingency planning with Washington and Seoul. The summit concluded with an MoU with Brazil to boost cross-border e-commerce, and four trade and economic action plans on investment facilitation, trade in services, IPR and technology cooperation. Finalising ‘RCEP Key Elements for Significant Outcomes by End 2017’ was a focus at the 16th China–ASEAN Trade Ministers Meeting. The import tax policy on B2C retail was postponed to end 2018, giving enterprises and government more time to prepare. Ministry of Agriculture elaborated on plans to extend subsidy funding for ag machinery purchases and farm insurance premiums to projects abroad, citing broader efforts to encourage agribusiness Going Global. Pilots will go live this year, linked to international agricultural cooperation projects along Belt and Road.

China Unicom released its long-awaited mixed-ownership plan, enabling it to raise 78 bn, mainly to develop its 5G capabilities. The critical next step of the plan is opening board membership to non-SOE stakeholders. Sale and manufacture of traditional fuel vehicles will be phased out, declared Ministry of Industry and Information Technology (though not before 2035, according to industry insiders).


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august policy movers

policy professionals in and out of the establishment

Li Dunqiu 李敦球 | Chinese Academy of Social Sciences Korean peninsula expert

Ethnically Korean, former director of the State Council Office of Korean Affairs Li is one of a holdout group for whom North Korea remains a strategic asset. Views he published in Global Times were fiercely attacked by retired PLA general Wang Hongguang 王洪光, insisting Beijing’s and Pyongyang’s interests no longer coincide (Beijing is not ‘North Korea’s saviour’). Abandoning Pyongyang would, argues Li, be to the strategic advantage of the US, and a security threat to China. ‘Maintaining balance’ on the peninsula is hence China’s priority. THAAD only destabilises the region, finds Li, urging its removal be incorporated in UN resolutions against North Korea.

Xiang Junbo 项俊波 | former CIRC chair

Launching 282 new policies in 2011–17, CIRC under Xiang freed the industry from over-regulation. Apart from C-ROSS and widening insurance firms’ investment options, he also strove to marketise life and auto insurance. During the 2015 stock market turmoil, Xiang raised the equity investment cap to 40 percent of the previous quarter’s total assets, seen by some as greenlighting risky bids for insurance firms. In January 2017, he coined the slogan ‘CIRC should live up to its name’, stressing the need to regulate before promoting industry growth. This came too late, however: the political climate shifted towards financial security. Xiang was sacked and removed from the Party, with the decision finalised and publicised late September.

Wang Shouwen 王受文 | Ministry of Commerce (MofCOM) vice minister

MofCOM Department of Foreign Trade director general since 2006, Wang was appointed Vice Minister in 2015, handling foreign investment, international trade, investment promotion, WTO and multinational corporations research portfolios. Foreign enterprises, he argues, do indeed face SOE monopoly and invisible barriers post establishment in China. But the claim overlooks progress in relaxing market access for foreign investment via a shortened negative list and greater policy protection for market competition. Wang draws on a State Council’s document on setting up an assessment system for fair market competition. This advises that all domestic policies need to be assessed and approved on criteria of fair competition and a level playing field for foreign and Chinese enterprises and SOEs alike.


policy ticker highlights

gems from our feed of policy releases and domestic debate

geopolitics

action blockbuster reveals B&R ambition
Chongyang Institute of Financial Studies | 20 September

The action blockbuster Wolf Warrior II reflects China’s promotion of development and fairer international trade rules via the Belt and Road Initiative (B&R), opines Chen Xiaochen 陈晓晨 Renmin University Chongyang Institute for Financial Studies International Studies Department director.

The movie is, he discloses, based on recent engagements in Africa

  • the overall plot echoes a terrorist attack by El Mourabitoune in Mali in 2015, murdering three PRC citizens
  • the shooting of a Premier was adapted from the kidnap and murder of Patrice Lumumba, Premier of the Democratic Republic of Congo in 1960
  • the movie’s Dr Chen commemorates Zhou Tianxiang 周天想 China Railway International Group director, killed in the Mali attack

On display, finds Chen, are six symbolic aspects of PRC engagement in Africa

  • investment
    • Qian Bida 钱必达, a sly businessman who invokes his PRC nationality when danger threatens, exemplifies some Chinese businessman in Africa
    • investment there is growing in infrastructure, including transportation, airport, ports, bridges, telecommunications, dams and utilities
  • medical assistance
    • hospitals shown are modelled on the 42 Chinese medical corps and 1,200 medical professionals posted to Africa
    • this medical assistance has, claims Wang Liji 王立基 National Health and Family Planning Commission Department of International Cooperation deputy director, built trust over 50 years
    • on the outbreak of Ebola in early 2014, China sent over 1,000 health personnel
    • 750 million RMB of medical aid were sent in four tranches
    • the first P3 laboratory in Africa was set up
  • overseas military operations
    • a captain in the movie represents PRC naval operations overseas
    • undertaking escort missions, China’s Somali fleet in has deployed 26 teams since 2008
    • the PLA Support Base in Djibouti, the first of its kind, was commissioned on 1 August 2017, supplying ships in the Gulf of Aden and Somalia
  • evacuation of nationals
    • echoes those of PRC nationals during the uprising against Libya’s Muammar Gaddafi in 2011
      • IL-776 and other aircraft were sent to Libya, rescuing 35860 people were rescued within 240 hours
    • also echoes the earthquake in Nepal in 2015
      • in 2015, Chinese aircraft were the first to arrive in Nepal to rescue foreigners
    • missile frigate Xuzhou was dispatched to escort two merchant marines lent to Greece in 2011
  • rallying round the flag
    • a character holding up the national flag echoes rescue of staff from China State Construction Libya branch in 2011
    • Wang Shouhe 王守合 China State Construction Libya branch laboratory head holds the Chinese national flag high, gathering Chinese in the crowd
    • holding up flag, they pass customs singing the national anthem
    • during the evacuation in Yemen, Chinese naval frigates hung up both Chinese national flag and Yemen’s flag
  • PRC identity
    • The line ‘Don’t give up when you are in danger overseas. Remember, your great motherland has your back’ strokes Chen’s heartstrings: a Chinese passport may not take you everywhere in the world, but it can always take you home at the earliest time possible

BRI’s reality in international affairs

  • Nairobi–Mombasa railway
    • built starting in 2014, commissioned 31 May 2017
    • connects six east African countries: Kenya, Tanzania, Uganda, Rwanda, Burundi and South Sudan
    • train speed: passenger 120 km/h, freight 80 km/h
    • carrying capacity 25 million tonnes
  • Addis Ababa–Djibouti railway
    • is the first electrified system in East Africa, built with Chinese materials, to Chinese standards
    • spans 750 km with a designed speed of 120 km/h, and total investment of some US$4 bn
    • travel time on commissioning will shrink from seven days to ten hours

finance

CIRC internal study session emphasises its role as regulator
China Insurance Regulatory Commission | 25 September

From 21 to 24 September 2017, China Insurance Regulatory Commission (CIRC) held a high-level official study session on Xi Jinping’s 习近平 speeches on financial regulations. Chen Wenhui 陈文辉 CIRC vice-chair delivered the main address at the study session.

Chen said that, in the spirit of Xi’s speeches, study session attendees should

  • develop an in-depth understanding of finance
    • understand that finance is fundamental in modern-day society
    • financial security is an important part of national security
  • maintain precise regulatory positioning
    • be conscious of the special importance of financial regulation
    • set a clear boundary between regulators and targets of regulatory oversight
    • correct any digressions from the role of financial regulation; realise that CIRC’s responsibility is to regulate, not to size up the industry
  • have a good grasp of objectives and tasks
    • uphold four CIRC principles
      • focus on core mandates
      • optimise structure
      • strengthen regulation
      • maintain market orientation
    • implement three core responsibiltiies
      • service the real economy
      • curb financial risks
      • deepen financial reform

Chen urged study session attendees to think about

  • ‘insurance living up to its name’
    • insurance is a product for consumption, not an investment instrument
    • the industry should see market potential of conventional products that offer risk protection
  • ‘CIRC living up to its name’
    • CIRC’s objectives should be to protect public interest, ensure market fairness and maintain industry stability
    • CIRC should prioritise the interests of consumers before those of other market entities and treat industry players fairly, without special treatment to any specific firms
    • CIRC should prioritise security before growth, restore strict oversight and maintain market stability
  • closing regulatory loopholes and mitigating risks

agriculture

Chinese companies acquire world’s largest duck trader
Caixin | 11 September

Beijing Capital Agribusiness Group and CITIC Modern Agricultural Investment Co Ltd have together acquired full ownership of Cherry Valley Farm, a farming company in the UK, to gain access to duck varieties owned by the company, notably the ‘Peking duck’ breed. According to public records linked to the transaction, the company was purchased for an estimated 1.5 bn, says Caixin.

Cherry Valley has over 50 years’ history in duck breeding and genetic improvement and exports to over 30 countries. Introduced from China in the 1970s, the company’s ‘Peking duck’ breed was and has been improved through breeding programs to grow quickly and produce relatively lean meat. Data from Beijing Capital Agribusiness Group suggest Cherry Valley held over 75 percent of global duck trade market share in 2016.

After the acquisition goes through, Capital Agribusiness and CITIC Modern Ag will obtain complete patented genetics for Cherry Valley’s duck varieties. The companies have announced plans to set up an independent genetics laboratory in China and transfer research and development from the UK to take advantage of domestic genetics and promote improvement and consolidation in the duck meat industry chain, says the article.

society

world-class 2.0 universities list to deepen education inequality
Economic Observer | 21 September

The candidate world-class 2.0 universities list issued recently aims to build an education powerhouse through more investment into targeted universities and disciplines, says Zhou Guangli 周光礼 Renmin University professor.

In essence, the new list is all about how to allocate resources, says Zhou. The selection favours western universities by including three non ‘Project 985 or 211’ universities in Zhengzhou, Xinjiang and Yunnan, he adds. However, education inequality will likely worsen despite this, he adds. The biggest winners—Beijing, Shanghai and Jiangsu—all in the East, have had respectively eight, four and four additional universities added to the top universities list, he says.

The list still follows the same state-centred resource allocation model as the old ‘Projects 985 and 211’, which worsened education inequality, says Zhou. Free competition for resources should be encouraged, he adds.

governance

experts advocates for a better defined juvenile judicial system
Caixin | 24 September

Juvenile offenders are committing crimes at increasingly early ages, according to a Beijing First Intermediate People’s Court report published in June. While a white paper issued by State Council on ‘New progress on guaranteeing human rights in the judiciary’ showed juvenile crime decreased overall, says Caixin, the Beijing Court report shows female juvenile crime rates increased.

Scholars and professionals presented suggestions for reform during a conference at Beijing High Court on 22 September 2017. Rebellious behaviour is a natural product of puberty, says Li Meijin 李玫瑾 Chinese People’s Public Security University professor, but screening minors for more enduring personality issues is needed. More attention should be given to the victims of juvenile crime, argues Zhao Deyun 赵德云 Beijing Juvenile Court president.

The Civil Code should have a chapter dedicated to guardianship, laying down specific rules, argues Xia Yinlan 夏吟兰 China University of Political Science and Law professor. While the UN Convention on the Rights of the Child establishes basic principles, she says, each country must hammer out specific systems according to its situation.

Advocating for a juvenile judicial system with Chinese characteristics, Tong Lihua 佟丽华 Beijing Legal Aid Research Centre proposes centrally managed juvenile court and family court systems.

Unless new institutions are built, progress will be difficult, says Yao Maokun 颜茂昆 Supreme People’s Court (SPC) Research Office head. SPC should set up a specialised judicial organ for juvenile crime, argues Yao, which would advance juvenile judicial reform domestically and improve the image of China’s judiciary internationally.

trade

cross border e-commerce businesses must manage foreign exchange risks
21st Century Business Herald | 8 September

Foreign exchange risk management is a decisive factor for cross border e-commerce (CBEC) success, says Zheng Xiaorong 郑晓嵘 KVB Kunlun International Trade director. Large wholesale CBEC exporters bear the brunt of Chinese currency appreciation, reports 21st Century Economy. The –US$ central parity rate went up for the ninth time to 6.5269 on 7 September, the highest since May 2016.

The 5 percent appreciation has squeezed profit margins of CBEC to between 5 and 10 percent, says Li Zhiqiang 李志强 Shenzhen Youkeshu Technology CEO, noting

  • companies dealing with bulk commodities will be greatly affected by foreign exchange risk
  • such risk is relatively controllable for companies taking small orders
  • direct mail of customised products and products where China has comparative advantages in manufacturing, like electronics or robotic vacuums, is barely affected

To counter risk, Li suggests CBEC businesses

  • increase their bargaining power
  • control settlement of exchange time in their favour
  • work with overseas suppliers to reduce costs of foreign exchange through overseas direct purchase
  • seek assistance from financial institutions

Zheng advices financial institutions working with CBEC businesses to

  • help manage foreign exchange positioning and exposure
  • help identify the scale of losses should they happen
  • provide risk-aversion portfolios

CBEC B2B and B2C now make up for a quarter of foreign trade, compared to only 10 percent in 2012. The number is expected to reach 40 percent by 2020, says Ouyang Cheng 欧阳澄 AliResearch Cross-Border E-commerce Research Centre director.

science and innovation

promoting civil–military collaboration
The Beijing News | 23 September

Promoting civil–military integrated development requires systematic science, thought and methodology, said president Xi Jinping 习近平 at the Central Civil–Military Integrated Development Commission’s second plenary session.

The national defence sci-tech industry must be led by civil–military integrated development strategy, says a report on the meeting. The commission called for

  • breaking down barriers, reducing thresholds and creating a fair policy environment
  • structural adjustment of military scientific research capabilities
  • civil–military resource sharing, including technology, capital, information, talent and equipment
  • using cloud computing, big data, and the internet of things in military logistics, which in turn can contribute to storage, healthcare and emergency services
  • effective collaboration in sci-tech megaprojects

The Commission passed

  • ‘National defence sci-tech industry development 5-year plan (2016–20)’
  • ‘Opinions on promoting civil–military integrated development in the national defence sci-tech industry’
  • ‘Implementation opinions on civil–military integrated development in military logistics (2016–20)’
  • ‘Management measures on implementing national defence requirements for projects where building up the economy and national defence are strongly linked (draft)’

industry and environment

challenges for China Unicom mixed-ownership reform
Economic Observer | 30 August

The announcement of mixed-ownership reform of China Unicom in August 2017 is considered a forward-looking experiment for one viable direction of SOE reform, says Gao Minghua 高明华 Beijing Normal University SOE reform researcher. Pioneering though it may appear, the depth of mixed-ownership reform, especially in institutionalising the modern corporate governance system, remains to be seen, he adds.

  • shareholding structure
    • three state-owned shareholders, China Unicom (36.67 percent), China Life (10.22 percent) and SOE Structural Adjustment Fund (6.11 percent), collectively hold 53 percent of total shares, signalling that state capital still controls the company
    • private involvement would not be powerful enough to check state-owned capital
    • enlarging involvement of private capital could potentially stimulate technological spillovers from leading private high-tech companies to China Unicom
  • board member selection
    • assuming there are 15 positions on the board, representatives for state-owned capital are expected to take seven or more, leaving only three positions for private capital, as the law requires at least five independent board members, says Gao
    • very difficult for private investors to truly engage in and influence the decision-making process
  • manager selection
    • although the project alludes to forming a diverse board of trustees and senior management and exploring marketised recruitment of managers, whether recruitment is open to all applicants without interference from the Party committee is yet to be confirmed

There is little successful precedent in mixed-ownership reform; even if proportion of shares held with state capital is not predominant, state capital still maintains significant influence. Strong private capital is necessary to balance state capital to achieve the intended outcome of mixed-ownership reforms, concludes Gao.


china policy in the media

mentions of our work elsewhere

China’s National Congress prepares to shuffle the deck in second-largest economy
The Age | 30 September

China Policy’s David Kelly, an Australian who has been observing Chinese politics for 40 years, says he no longer watches for factions but rather where people sit along an “axis of risk aversion”, to guess who Xi will want to work with. Who in the party thinks China should push onto the world stage faster? Who wants a more cautious approach?

Doklam pact as big publicity loss: analyst
Times of India | 26 September

Many among the Chinese elite and party rank and file were not in favour of going for the agreement on troop withdrawal after weeks of the border standoff, David Kelly, research director at Beijing-based consultancy China Policy, said in his lecture here on Tuesday evening. Kelly said, “It (border agreement) is a big publicity loss… The newspaper-reading public is not satisfied. Readers believe that if the PLA can attack, it should attack”.

China’s struggles to attract foreign investment
EURObiz | 26 September

Grasping how the use of ‘negative lists’ is shaping governance shifts is key to successfully navigating new business opportunities in China. The regulatory environment has changed slowly since the 2013 Third Plenum declaration of a more open and inviting investment atmosphere, but has sped up notably in 2017. Now more than ever, knowing all the facts and status of reform can make an immense difference to business operations. Philippa Jones and Erlend Ek from China Policy help to untangle China’s changing trade policy and clarify how China’s new regulations are supporting its bid to become a champion of globalised trade.

analysts: amendments to China’s constitution to include Xi Jinping Thought
VOA News | 19 September

Since Mao Zedong ruled China, the key thoughts, ideas and ideals of the country’s Communist Party’s leaders have been added to its body’s constitution as it has single-handedly ruled one of the world’s most populous nations. But not all have had their names tagged on to their ideals. The practice is something like President Franklin D. Roosevelt’s New Deal, said David Kelly, director of research at China Policy, a Beijing-based consulting company. “[When] you think of Roosevelt, you think New Deal,” he said. “Powerful people want to leave these monuments behind as their legacy. To have that, it extends the lifetime of their political influence.”

China may be the real target of North Korea’s pressure
AFP | 11 September

Both Pyongyang’s nuclear and missile programmes have been banned by the UN Security Council, and Sunday’s blast dramatically raised the stakes in Kim’s standoff with the world. David Kelly of Beijing-based think tank China Policy said the new sanctions and China’s decision earlier this year to suspend North Korean coal imports — a crucial source of cash — were likely triggers for Pyongyang’s growing belligerence. “The message is: I am not to be messed with,” said Kelly. “He’s been messed with by the games played by Washington and Beijing.”

Moody’s flags stronger profits for Asian steel producers
The Australian | 3 September

Moody’s also attributed some of the capacity reduction to environmental measures. But at a meeting last week cited by analysts at China Policy, the China Iron and Steel Industry Association said that these measures were prompting temporary, not permanent, production suspension since, it claimed, the majority of CISA members could meet the new required emission level standards.


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