roundup from our portfolios

The Party grasped the initiative on domestic and international challenges in March. On the domestic front, the National People’s Congress approved a plan to restructure the national government 17 March. Part of larger Party-state reform plans that transfer a host of State executive functions to the Party, it heralds a return to decisive central control, intent on limiting domestic risks while moving up the global value chain. As plans were still being announced, trade tensions on the Korean peninsula and ties with Russia pulled Beijing’s attention abroad. Confirmed as ‘helmsman’ of the state, Xi confronts these challenges with unquestioned authority.

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As trade tensions escalated with the US, China prepared to stare Trump down in an extended standoff. Economic analysts argued that the two countries have interests in common and will eventually settle the dispute ‘rationally’. But seeing the trade issue as part of a comprehensive US containment strategy, commentators urge a tough posture to avoid a damaging repeat of the US–Japan Plaza Accord. China, argues Liu Junhong, is better positioned to resist US pressure than Japan was in the 1980s, while Wang Xinxin sketches a targeted strategy to divide Trump from Congress by putting pain on his base in US farm states.

China’s foreign policy world has long debated a Sino–US ‘Thucydides Trap’, but in the context of the trade dispute, bilateral prospects are interpreted optimistically. A pledge of closer military ties with Russia made 3 April by Defence Minister Wei Fenghe on a visit to Moscow was an explicit signal to the contrary. When Trump agreed to direct talks with Kim Jong-un, China seemed briefly dealt out of the picture. But Kim’s surprise visit to meet Xi in Beijing 25-8 March saw him reaffirm his status as a client. Analysts, long divided on the prospects for peace, remain certain that China will be key to it.

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The 17 March government restructuring seeks to replace a complex and inefficient web of overlapping responsibilities with a streamlined machinery of government that imposes ‘lifelong’ accountability on officials. Integration of central-level commissions and leading groups with ministries is likely intended to align daily operations with Party leadership. The new ministries are set to be up and running by mid-April. Supreme among them is the National Supervision Commission, constitutionally on a par with State Council and extending Party discipline across the whole public sector.

In the short term, expect administrative delays as officials assume new functions; in the medium term, there is promise of gains in policy efficiency and reductions in red tape. For example, the new State Administration for Market Regulation (SAMR) unites three legacy quality and safety regulators—State Administration for Industry and Commerce; Administration for Quality Supervision, Inspection and Quarantine; China Food and Drug Administration—aiming to replace multiple standards and licenses with a one-window services (medical products will be regulated by a separate State Drug Administration, under SAMR). It will also take over formerly fragmented competition oversight, pledging greater predictability and professionalism in anti-monopoly investigations.

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march policy movers

policy professionals in and out of the establishment

Yang Xiaodu 杨晓渡 | National Supervision Commission director

Shanghai-born, Yang spent 25 years in Tibet, where he was named vice-governor in 1998. Transferred to Shanghai in 2001, Yang remained there for the next decade. Going on to become deputy head of CCDI in 2014. The 19th Party Congress promoted Yang to the Politburo, paving the way for him to head the National Supervision Commission at the March 2018 NPC. The appointment of Yang to the new Commission—bureaucratically on par with the State Council and Supreme Court—surprised many. The post, many thought, was bound to go to CCDI chair and Politburo Standing Committee member Zhao Leji 赵乐际. The appointment of a career party official to lead supervision work indicates that it will be run like a Party body. It is widely expected to extend the anti-corruption campaign, previously restricted to Party members, to government officials high and low.

Chen Xiwen 陈锡文 | NPC Agriculture and Rural Affairs Committee chair

Highly respected policy expert on ag and rural affairs, Chen served as head of the CPC Central Rural Work Leading Group until his semi-retirement in 2016. An agricultural economist renowned for hands-on experience as well as policy expertise, he also served as deputy director of the CPC Central Economic Leading Group. Relatively conservative on collective rural land, his views have moderated in recent years, though he still opposes land privatisation. His March 2018 appointment to chair the NPC Ag and Rural Affairs Committee gives him a key role in upcoming rural legislation, including drafting or revision of Farmland Requisition Tax Law, Rural Land Contract Law, and Land Management Law, all planned for the next five years. During the 2018 Two Sessions, Chen also proposed a new Rural Collective Economic Organisation Law.

Jiao Hong 焦红 | State Drug Administration director

With experience working in pharma companies and the health system, Jiao reformed medical device regulation at the China Food and Drug Administration (CFDA). Her system identifies categories of medical devices as low, medium or high risk, expediting approvals for low risk products and increasing oversight for high risk. CFDA enacted a number of other significant new medical device regulations and supporting policies during her time on the job. She said the regulator sought to build an efficient registration and approval system that fit international standards and industry needs. Her work on saving approval time for the industry paid off, with a 14.9 percent y-o-y increase in medical device approvals in 2016.


policy ticker highlights

gems from our feed of policy releases and domestic debate

geopolitics

Xi–Kim meeting proves relevance of China
Global Times |

context: North Korean top leader Kim Jong-un visited China 25-28 March. Zhou Xin reflects on China’s relevance in this Global Times editorial.

Since the beginning of this year, notes Zhou Xin 周信 Global Times commentator, the situation on the Korean Peninsula has undergone major changes that exceed many’s expectations. For a time, he writes, various theories—’China is useless,’ ‘China has been marginalised’ and ‘Chinese diplomacy has failed’—have emerged. Some people even claim that the situation has never been more awkward than than it is now.

Zhou refutes this in ‘three sentences’

  • China has always played an important role in promoting the resolution of the Peninsula issue and denuclearisation
  • China persists in persuading peace talks, dialogue and consultation, always guiding the correct direction of the settlement of the Peninsula issue
  • the traditional friendship between China and North Korea has always been a firm strategic choice of both

Zhou recites Kim Jong-un’s pledge in talks with Xi that ‘if South Korea and the United States respond to our efforts in good faith, creating a peaceful and stable atmosphere and adopting periodic and simultaneous measures to achieve peace, the issue of denuclearisation on the Peninsula can be resolved’.

We should have more confidence, Zhou repeats, in the ‘good practice and good tradition of adhering to the resolution of issues through dialogue and consultation’, which are distinctive features of China’s diplomacy.

finance

a new global macro-economic policy institution will soon emerge
Yicai | 29 March

context: Central Deepening Reform Commission reviewed a new set of Opinions on international macroeconomic policy at its first meeting on 28 March. The Opinions promote BRI as a better platform to deal with global economic policy challenges.

Due to the lack of reforms in existing institutions, says Zhai Dongsheng 翟东升 Renmin University of China School of International Studies vice-president, a new global macro-economic policy institution will soon emerge. The trend of anti-globalisation recently championed by the US is not in other states’ interests, and the US will lose privileges in other areas if it does not change course, he argues. The Belt and Road Initiative (BRI) promotes global economic development and gives China a better position in coordinating economic policy with developing countries, argues Zhai.

‘Opinions on participation and promotion of international macroeconomic policy formation and coordination’ is timely and highlights the new Central Deepening Reform Commission’s focus on international macro-economy as a crucial area, reports Yicai, noting China is eager to participate more in global governance.

The Commission plans to achieve this through

  • prioritising BRI and multilateral institutions
  • wielding the policy tools of finance, currency and structural reform
  • coordinating government, businesses and industry associations

To improve the structure of global governance, China is pushing for reforms both in existing multilateral institutions and alternatives such as BRI and AIIB, says Zhou Qiangwu 周强武 Ministry of Finance International Economics and Finance Institute director.

G20’s coordination mechanism is not effective and must be improved, says Zhang Jianping 张建平 Chinese Academy of International Trade and Economic Cooperation Academic Committee deputy director, urging China to present a clear strategy for future reforms of global economic institutions to improve efficiency. Facing anti-globalisation sentiment and an uncertain geopolitical environment, Zhang argues that effective communication is now especially crucial. China can promote BRI as a new mechanism because it supports comprehensive and systematic international economic cooperation and coordination, he says, suggesting more attention be paid to BRI’s financial policies to support its international infrastructure projects.

agriculture

MoA minister: more green ag funds, less rice paddy area, new ag cooperation plan with Russia
Observer | 7 March

context: Press conferences with senior officials are a hallmark of the Two Sessions agenda. MoA Minister Han Changfu largely covered familiar talking points, but a number of details have immediate policy implications. His mention of a joint China–Russia ag cooperation plan is of particular interest as the region may become a major source of bulk commodity imports in coming years.

Han Changfu 韩长赋 Ministry of Agriculture (MoA) minister discussed top priorities in agriculture policy at a press conference on the sidelines of the 2018 Two Sessions, discussing a push for higher quality in agriculture, the rural revitalisation agenda, land reform, and international cooperation.

Russia and China’s Ministries of Agriculture are jointly preparing a Northeast China–Russia Far East and Baikal Agriculture Cooperation Plan to guide bilateral ag trade and investment in the region and make it more convenient. The Plan will also cover talent and technical personnel, Han says. Last year, bilateral agricultural product trade exceeded US$4 bn.

Han says MoA is working with Ministry of Finance to redesign agricultural subsidies and support systems to fund green ag development.

Han says next steps on rural revitalisation will be release of major strategic plans, led by National Development and Reform Commission.

Han says ‘while grain is a special commodity, it is also a commodity, and therefore grain production must adjust to changes in the market.’ Remarking on downward adjustment of minimum purchase prices for wheat and rice, Han notes farmers will receive direct subsidies to supplement their incomes, and support is planned this year to help farmers transition to higher quality rice, and high- and low-gluten wheat varieties. MoA is also targeting a reduction in rice paddy area this year.

On land reform, Han says

  • extension of farmland contracts means they now expire around 2050, when the country may be ready for ‘more significant’ further land reforms
  • existing policies encourage rural households that resettle in cities to voluntarily return land contracts to the rural collective and be compensated according to state-set rates; after the second round of rural land contracts expire, ‘other approaches’ may be considered
  • three rights separation will be piloted for rural homestead land and idle rural houses this year, but there is currently not a legal means for urban hukou holders to build houses on rural homestead land; it is only legally available to members of the local rural collective economic organisation

society

MoE minister: another 18 provinces to start gaokao reform in 2018
Xinhua Net, Caixin, The Paper | 16 March

context: Reform of China’s highly competitive college admissions test known as thegaokao is a controversial topic. Supporters of the exam highlight its irreplaceable role in giving everyone an equal chance, while critics say myopic focus on exam preparation makes the Chinese education system overly rigid.

The gaokao reform pilots in Shanghai and Zhejiang have been successful, said Chen Baosheng 陈宝生 Minister of Education at a 16 March CPC press conference. The pilots include high school pedagogy reform, said Chen, highlighting the shift from assigning groups of students to an individual classrom to allowing flexible classes based on elective modules.

Chen acknowledges the reform introduces new challenges, such as determining how much autonomy should be given to students, and balancing students’ preference for easier modules. The pilots have generated improvements nonetheless, and MoE has been working to expand pilots into Beijing, Tianjin, Shandong and Hainan since 2017. Chen also announced plans to start gaokao reform in another 18 provinces in 2018.

In a recent Caixin editorial, prominent critic Lu Yi 陆一 Fudan University Higher Education Research Institution argued the reforms ‘run counter to the spirit of college entrance examinations’. He says the reforms break the principle of equality by allowing sophisticated parents and for-profit education advisory companies to game the system and choose students’ curriculums for them.

Zhejiang MoE released an urgent notice on 1 March forbidding schools from requiring students choose gaokao subjects earlier than the end of grade ten. Some schools encouraged students to pick subjects earlier, in order to allow more time for gaokao preparation. The notice says this practice runs counter to reform efforts.

governance

institutionalising all-encompassing Party leadership
Ifeng, Xinhua Net | 22 March

context: The CCP has released its restructuring plans, aimed at strengthening Party leadership in part through converting some leading groups to commissions and assigning certain Party bodies more functions.

A resolution for institutional overhaul of Party and state bodies has passed the Central Committee’s third plenum, reports Huang Kunming 黄坤明 CCP publicity chief. Huang highlights changes supporting stronger Party leadership

  • upgrading certain institutions to ‘decision-maker’ roles
    • inheriting leading groups for policy implementation, President Xi has founded a few new groups
      • calling them decision-making, deliberating and coordinating institutions, Xi has upgraded them from assisting roles to core policy drivers
      • these institutions will work under the direct leadership of the Politburo and its Standing Committee, while taking on top-level design, far-reaching coordination, and implementation of major affairs
  • leadership position of Party organs
    • Politburo Standing Committee has begun reviewing work reports of other core institutions (State Council, National People’s Congress)
    • government institutions, public service agencies, mass organisations (like All-China Women Federation), and enterprises should establish internal Party units and report to the Party institutions which have approved them
  • integration of the Party and state
    • Party and state institution structures will be improved and relations will be streamlined for higher efficiency

trade

guiding opinions on increasing imports due soon
China Trade News | 29 March

context: In 2014, a State Council directive brought forward the strategy of ‘active import promotion’. The government work report delivered at the 2018 session of the National People’s Congress calls for ‘actively increasing imports’. Premier Li Keqiang promised to ‘cut import tariffs on cars and some consumer goods’.

MofCOM and other agencies are currently drafting guiding opinions on increasing imports to promote trade balance, reports China Trade News. At a time of rising trade tensions between China and the US, the new guidelines could effectively fend off criticism targeted at China and deliver a blow to protectionist sentiment overseas, says the article, which also notes that this move underscores China’s commitment to addressing trade imbalances with other countries and to trade liberalisation.

Import of end products has been low over the years, it says, noting

  • for the past 40 years, China has mainly imported raw materials and intermediate products to support exports, while import of end products has been constrained by high tariffs and non-tariff barriers
  • China’s import of end products accounts for only five percent of total imports, while the world average is about 20 percent
  • China’s per capita import of consumer goods is about US$36, much lower than America’s US$996 and lower than ASEAN average US$198

Increasing imports of consumer goods, says the article, can yield benefits including

  • replacing conventional export-oriented measures to more balanced trade policies
  • answering the ‘people’s demand for a better life’ and winning domestic political approval
  • promoting high-quality economic development by addressing problems caused by the export-oriented development model, such as environmental pollution, depletion of resources and lack of industrial innovation

industry and environment

state announces 10 percent price cut for industrial and commercial electricity
Weixin | 9 March

context: The ‘2018 government work report’ revealed the first ever quantitative goal to reduce the price of electricity for industrial and commercial use (note: this is one category of electricity pricing, alongside agricultural electricity use, large industrial production use, etc.), which is in line with a campaign to unburden the real economy and rekindle the economic growth that started in 2012.

The ‘2018 government work report’ announced that grid transmission fees will be reduced and electricity prices for industrial and commercial use will be lowered by 10 percent on average in 2018. The price for industrial and commercial electricity is currently around 0.8/KWh, so a 10 percent cut means reducing it by 0.08/KWh, says Cao Peixi 曹培玺 Chinese People’s Political Consultative Conference (CPPCC) National Committee representative and China Huaneng Group chairman. Total electricity expenses nationwide are expected to be cut by 80 bn this year, estimates Shu Yinbiao 舒印彪 CPPCC National Committee representative and State Grid chairman.

Power plants and energy grids are expected to be the major contributors in fulfilling the reduction targets. Shu estimates that State Grid will take on around 80 percent of the responsibility in the campaign, while Cao points out that if electricity price drops by 0.01/KWh, power plants will lose over 10 bn.

The current price of electricity for industrial and commercial use is substantially higher than that paid by large industrial producers; many members of CPPCC and National People’s Congress (NPC) believe the price cut will be effective in reducing expenses for businesses. The announcement was applauded as a boon to the real economy by Cao Zhi’an 曹志安 CPPCC National Committee representative and China Southern Power Grid general manager, who is confident that even if energy consumption increases as price drops, it will not lead to power shortages.

science and innovation

putting NSFC under MoST suggests basic research must serve industry needs
Caixin | 14 March

context: The government overhaul placed NSFC under MoST, which is tasked with aligning research with national priorities. This contrasts with an emphasis on basic research, and points to unresolved issues with sci-tech funding reform launched in 2014.

The state should reconsider its move to put the National Natural Science Foundation of China (NSFC) under Ministry of Science and Technology (MoST), says Hao Yue 郝跃 CPPCC member, CAS academician and Xidian University vice dean. Whereas MoST’s mission is to develop high tech and ensure industrialisation, NSFC supports basic research, such as mathematics, physics, computer sciences, says Hao, noting its funds for young scientists, talent and regions are indispensable. Moreover, NSFC as a marketised fund has its own principles on grant distribution and merit review.

CPPCC member and CAS academician Liu Zhongfan 刘忠范 agrees basic research may suffer, advocating institutional reform. China is building a system of national labs after the US example, but its research institutes are set up after the Soviet model; six new national research centres and a number of centres set up under NSFC add further confusion over positioning. Liu recommends

  • MoE to supervise state key labs (SKL) on basic research, which relies on talent, and nurturing talent is MoE’s responsibility
  • MoST to supervise SKLs on applied research and enterpreneurial R&D centres; it should not only evaluate applications on the basis of research papers, as it does now, but also take projects’ potential use value into account; its research institutes should encourage interaction with enterprises
  • Chinese Academy of Sciences (CAS), Chinese Academy of Engineering (CAE) and Chinese Academy of Social Sciences (CASS) to transform their hundred-something research institutes into national research centres; currently CAS functions like a university; it publishes papers, has set up a university, and will eventually build paths to funnel in students starting from grammar school


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