watching for

  • new head of the Financial Stability and Development Committee
  • property tax to enter 2018 legislative cycle
  • financial regulators restructure

outbound investment enforcement

Regulators came down on outbound investment like a tonne of bricks in February despite signalling tolerance for capital outflows. SAFE and insurance watchdog CIRC tightened control over ‘offshore borrowing with onshore guarantees’ in a 12 February joint release. This has in recent years allegedly been a key instrument used by Chinese firms to bypass capital control measures, allowing them to finance overseas M&As and disguise capital flight. CIRC announced a temporary seizure of Anbang Insurance Group 23 February, a once avid shopper for overseas assets. Anbang founder Wu Xiaohui 吴晓晖 is currently detained for investigation of ‘economic crimes’. CIRC also reprimanded three other insurers for non-compliant overseas investments.

Regulators insist that they are not trying to limit capital outflow. In an article published 7 February, Pan Gongsheng 潘功胜 State Administration of Foreign Exchange (SAFE) director writes that total flows have stabilised, allowing regulators to move to ‘policy neutrality’ and continue opening up the financial sector while fighting illegal practices. This forex policy promises neither to stimulate nor, more importantly, to stifle capital flows. The banking regulator (CBRC), in particular, published actionable details of plans for foreign investors to hold more equity in domestic banks. They also offered greater flexibility for these banks to roll out new services and products. CBRC claims that these rules are a step toward equal market access for foreign-invested banks and their Chinese-invested counterparts.

tags: financial sector opening up, overseas investment, Anbang, insurance

further reading
Economic Observer survey names key economic risks in 2018
PBoC: slowing M2 growth reconcilable with strong economic performance
Rebalancing central-local spending responsibilities for basic public services
CSRC chair: stock market not yet ready for IPO record-filing system

‘foreigner’s work permits’ will be easier to obtain in select areas

science and innovation

watching for

  • MIIT to prepare for 2018 Guiyang International Big Data Expo and 2018 Fuzhou Digital China Summit
  • more market access for international firms in advanced industries
  • MoST to gain power under plan for ministry mergers

local authorities compete for talent with VIP immigration lanes

Zhongguancun Science Park, a flagship tech hub in Beijing’s Haidian district, announced its own immigration policy on 26 February. Since the 1980s, special zones like Zhongguancun have attracted international capital and technology. As high-tech sectors face a skills shortage, these zones are shopping for global talent. Following similar zones in Shanghai and Hangzhou, Zhongguancun offers a package that includes streamlined immigration services and extra social services, like children’s education. National sci-tech research projects located in the park may also recruit leaders from abroad.

The April 2017 Ministry of Sci-Tech national technology talent development 5-year plan proposed a nationwide effort to address the high-tech talent shortage. It called for ‘bringing in high-level innovative talent’ to supplement efforts to train tens of millions of skilled domestic workers. Advanced manufacturing will be short 30 million skilled workers by 2025, estimate Ministry of Industry and Information Technology (MIIT), Ministry of Education (MoE) and Ministry of Human Resources and Social Security (MHRSS). Labour Daily predicts a looming shortage of 14 million big data analysts. The most pressing needs are for artificial intelligence (AI) experts, data analysts and engineers for automation, software and systems control, says Li Shaoyuan 李少远 Shanghai Jiaotong University.

In January 2018 State Administration of Foreign Experts Affairs (SAFEA) created a type-R visa for foreign experts, permitting repeated 180-day stays for up to ten years. Seven out of nine scientists receiving State Council sci-tech awards in January 2018 were foreigners. But relaxed immigration is a targeted policy that seeks elite talent only. Broader immigration to recruit talent is not on the table; it would entail deep social change to integrate migrants into Chinese society.

tags: innovation; labour supply; regional coordination

further reading
NEV subsidy cuts and battery recycling policies announced
MIIT to boost the new materials industry
big fund creating overcapacity in the chip industry
artificial intelligence investment heating up
cleaning up civil–military regulations

Beijing enjoyed its cleanest winter since air quality tracking began in 2013

energy, industry and environment

watching for

  • soil pollution prevention and control law
  • revised solid waste prevention and control law
  • resource tax law

next battle in environment campaign

Environmental regulators are tipped to gain more authority as the Ministry of Environmental Protection (MEP) plans the next stage of its battle with air pollution. It is finalising a new three-year air pollution plan, MEP announced at its February press conference. It also reported success on the five-year targets set in State Council 2013 ‘Air pollution prevention and control action plan’. The new three-year plan will target the Jingjinji region, Yangtze River Delta and Fenwei Plain (in Shanxi and Shaanxi provinces), according to the 2-3 Feb National Environmental Protection Work Conference. The Fenwei Plain was not mentioned in the previous plan and replaces the Pearl River Delta as a target region.

The new plan confronts daunting challenges, warns MEP: nitrogen oxides (NOx) levels are high and ozone pollution is rising. Pollution levels in the Yangtze River Delta jumped 20 percent in January, suggesting that stringent regulation in the north is displacing rather than reducing overall emissions. As end-of-pipe controls hit the point of diminishing returns, the new three-year plan will emphasise structural readjustment in the energy, transportation and industry, comments He Kebin 贺克斌, National Air Pollution Prevention Joint Centre vice director.

Thanks to a sweeping overhaul of the Chinese state endorsed by the Central Committee at its late February third plenum, both local and national environmental regulators are on track to get more power, as the leadership promises to prioritise environmental and ecological issues over growth. At the national level, Party authorities have proposed a more expansive environmental ministry or set of ministries. Further detail is likely to emerge on 13 March, when the two sessions are to pass restructuring measures. A national rollout for regional pilots to make local environmental regulators more independent of city and county governments is also scheduled in 2018.

tags: growth model 增长模式, air 大气, supply-side reform 供给侧改革, environmental protection 环境保护

as pork price falls, farm feed costs loom larger


watching for

  • Two Sessions details of food quality and safety agency restructuring
  • US–China trade tensions impact soy, other ag commodities
  • impact of human H7N4 avian flu case on poultry

pork prices plummet

Domestic pork prices have dropped sharply since the lunar new year, falling over six percent on average nationwide in February and up to eight percent in some local markets. The world’s largest pork importer, China is forecast by the US Department of Agriculture to buy a fifth of all internationally traded pork in 2018. Its domestic market drives global prices not only for pork but for soy and other feeds. Industry analysts were caught by surprise after forecasting 2018 price increases in late 2017; major producers are reportedly stocking up on feed to hedge against a shifting hog–corn price ratio.

The sector is notorious for its volatile ‘pork cycle’. State efforts to stabilise the market include a push for upscaling, last year’s introduction of a pork price index and the impending launch of live hog futures. Upscaling is premised on the view that large corporate farms are better able to weather short term price fluctuations and maintain a stable pig supply even when prices are low. Futures trading will face a major data problem: the three agencies that publish data on pig population regularly produce conflicting numbers.

As trade authorities reportedly consider tariffs on US soy imports, they will watch pork prices closely. Domestic farmers rely on these imports to feed their pigs, and tariffs could wipe out already slim margins, driving farms out of the market. A rebound in pork prices will not necessarily provide more room for soy tariffs, as avoiding inflation is also a top state priority.

tags: ag industrialisation 农业产业化, food consumption 食品消费, ag futures 农业期货, ag price setting 农业定价, meat 肉类, food production 食品生产

further reading
sorghum anti-dumping, anti-subsidy investigations serve corn industry interests
Interpreting long term impacts of environmental policy on the pork sector
lean pork index will include quality indicator

rice price reform?
People’s Daily: move rice pricing to market
minimum purchase price for rice lowered


Sun Junmao 孙君茂 | MoA food and nutrition development research institute vice director

Despite having no technical background in nutrition, Sun sits on a number of advisory committees responsible for developing food quality and nutrition standards. He was recently tapped to help lead a new expert group that will extend nutrition standards beyond food to agricultural products. A regular participant in health and nutrition forums, Sun argues additional scrutiny is needed to promote crops with high nutritional value, not just high yield. He holds concurrent roles directing nutrition-focused research bodies at MoA and Chinese Academy of Agricultural Sciences.

Wang Huiyao 王辉耀 | Centre for China and Globalisation (CCG) director

State counsellor and pioneering researcher on China’s global talent strategy, overseas returnees and immigration policy, Wang’s recent publication ‘2017 China’s regional international talent competitiveness index’ shows growing rivalry among provinces and metropoles in luring skilled foreigners. It ranks Shanghai most successful, followed by Beijing, Guangdong and Jiangsu. Wang urges open-door reforms: replacing SAFEA with an integrated immigration bureau; relaxing restrictions on permanent residency (i.e. issuing ‘Green Cards’); fast-tracking overseas Chinese immigrants; streamlining work visa application procedures; subsidising foreign exchange students; and supporting overseas returnee innovators and entrepreneurs.

He Kebin 贺克斌 | National Air Pollution Prevention Joint Centre vice director

It will take until 2025 for Jingjinji region to meet the national PM2.5 standard of 35 micrograms per cubic metre, predicts He Kebin, an environmental engineer long engaged in technical analysis of pollutants. To further improve air quality, he suggests focusing on reducing pollution from low-quality coal burned for residential heating and cooking, heavy industry sectors including steel and construction and non-road mobile machinery.

He Xiaofeng 何肖锋 | CIRC development and reform department director

Heading the CIRC working group that seized control of Anbang, He has also won media attention with a tough stance against predatory and risk-seeking business practices. There should be no hesitation about liquidating insurance companies whose high-risk investments bring them to the verge of insolvency, says He: liquidation that severely punishes shareholders is the only way to teach them a lesson. He also recognises the importance of preventing ‘Domino effect’ crises.

in case you missed it…

cp.signals—domestic policy movement
digitalising industry
meet the candidates

cp.positions—audit of shifts across policy sectors
governance: term limits, and more…
economy: No. 1 Doc released, and more…—monthly roundup
january: centralising power and tightening the economy
december: the New Era Socialist Economy with Chinese Characteristics