roundup from our portfolios

The scandal of substandard vaccines allowed on the market in mid-July is causing uproar, and bio-pharma, one of eight strategic industry sectors, is in damage control. Is corruption a thing of the past? Doubt arose as leaders prepared for their annual summer networking at the Beidaihe seashore. If regulators cannot stop fake vaccines running rampant, asked People’s Daily Online, what are they for?

6 July saw the opening salvo of a tariff war as US threats came into force. To ease economic pressure and strengthen trade partnerships, Ministry of Commerce (MofCOM) outlined 9 July four more ways to expand imports and promote trade balance. At a growing impasse with the US, China should prioritise trade partnership with the EU, said MofCOM after exchange of new market access requests at the 20th EU–China Summit. Beijing also agreed to discuss reforming WTO rules with the EU through a joint ministerial working group. Finding that the Belt and Road Initiative (BRI) and ‘Made in China 2025’ were provoking charges of mercantilism, the centre made efforts to lower their profiles in public messaging.

Despite the destabilising impact of trade conflict, July was an active season for China’s signature foreign policy initiatives: the BRI and ‘16+1’ cooperation with Eastern European states. Following a ‘16+1’ summit in early July, Xi promoted BRI in the Middle East and Africa in a series of state visits, winding up with a major address to the BRICS meeting in Johannesburg.

Tension between growth and de-leveraging mounts, exacerbated by the trade war. Stock and forex markets fell in the run-up to imposition of tariffs; top financial policymakers responded with reassurances. Moves to a mild stimulus prompted a squabble between monetary and financial authorities. Affiliated writers published acerbic op-eds, agencies accusing each other of sleeping on the job. A 23 July State Council executive meeting mediated the inter-agency conflict, urging ‘fiscal policy to be more active and neutral monetary policy to be more flexible’.

The Financial and Economic Affairs Commission, China’s highest macroeconomic decision-making body, held its second meeting 13 July. Focusing solely on sci-tech innovation, it followed pressure from economic slowdown and US sanctions on ZTE. State Council made three moves on sci-tech devolution: a plan for an efficient, individual-based and performance-driven evaluation regime; a decision to hand authority over sci-tech programs back to scientists and researchers; and new measures on improving sci-tech administration and R&D output. MoST reports a slight drop in R&D spending in fiscal 2017. While MIIT downplays MiC 2025, it seeks to revitalise industrial upgrading through new proposals on ‘manufacturing empowerment’ and on building an ‘internet powerhouse’.

Despite celebration of the ‘National Rural Revitalisation Strategic Plan (2018-22)’ following Politburo deliberations in early June, it remains unpublished. Top leaders nonetheless announced its ‘deployment’ this month and revealed that drafting of a related Rural Revitalisation Law has begun. This policy agenda spans modernisation and corporatisation of agriculture, reform of rural land and asset ownership structures, rural development and infrastructure construction, rural party-building and other governance reforms. The long wait to publish this crucial plan may reflect ongoing conflicts stemming from the vast scope of proposed reforms and range of interested parties.

State Council unveiled the long-awaited 2018-20 air pollution plan 4 July. Reducing transport and ozone pollution is a priority. Despite encouraging progress towards curbing industrial pollution and emissions from coal, vehicle emissions remain under-regulated. Diesel trucks are the primary concern: curbing their emissions will also help reduce black carbon, a key contributor to climate change. Reducing ozone-forming pollutants (NOx and volatile organic compounds) will help tame rising ozone pollution. Anti-pollution measures will be expanded to cover the Yangtze River Delta and the Jingjinji Region, with Fenwei Plain replacing Pearl River Delta as the third key area.

The centre is urgently seeking measures to manage an aging population, including developing elderly services and expanding commercial insurance. 29 provinces and municipalities have moved to open up the elderly care market; 26 will allow foreign investment. Reforms to the ‘third pillar’ of the pension system, commercial pension plans for individuals, are also in train. Nearly a quarter of international higher ed JVs were shut down by 15 July 2018, according to Ministry of Education (MoE). Seemingly a mere clean-up exercise, the longer-term goal is legal and administrative mechanisms to close ineffective foreign education ventures, says MoE.


centre stage: modern dance in china

It’s August, and it’s time for a break. So pack Centre Stage, our annual arts special, in your backpack and lose yourself in the sensuous world of modern dance before returning to the trade war and other worries.

This year, Alison M. Friedman, performing arts impresario, China modern dance expert, takes us backstage to meet a generation of dance pioneers who are moulding the human form into stretches of both the limbs and the imagination. Founder of cross-cultural enterprise Ping Pong Productions, after 15 years immersed in China’s modern dance world Alison is now Artistic Director of Hong Kong’s West Kowloon Cultural District, one of the largest cultural developments of its kind.

browse online here.


may policy movers

policy professionals in and out of the establishment

Zheng Yongnian 郑永年| South China University of Technology Institute of Public Policy chairman

Jointly appointed at South China University of Technology and at the National University of Singapore, Zheng uses his dual positions to express more pointed views on aspects of Chinese contemporary politics ranging from core policy initiatives to Party politics. He is one of a number of voices expressing concern about the scope and reach of the Belt and Road Initiative. BRI should not become overly ambitious, says Zheng, or it risks provoking resistance from Western nations who view large Chinese projects with anxiety. In addition, while infrastructure projects are needed to address global needs, they face tremendous natural, economic and political risk, increasing the likelihood that BRI will become a source of bad debts.

Xu Xiaonian 许小年 | China Europe International Business School finance professor

Following a career that began at the State Council Development Research Centre, Xu has distinguished himself as a leading economist for a range of high profile financial institutions. Influenced by neoliberal thinking during his US doctoral studies, Xu is an adamant liberal market advocate and former recipient of the Sun Yefang Award, China’s highest economics prize. Echoing the free market arguments of ‘Austrian school’ economists, Xu says the state is just as bad as, if not worse than, avaricious private capitalists. Xu argues China is heading into a post-industrial era characterised by overcapacity across industries, rendering conventional monetary and fiscal policies ineffective. In his view, the state should encourage innovation by private firms to create new growth engines rather than interfering directly.

Ye Jingzhong 叶敬忠 | China Agriculture University College of Humanities and Development Studies dean and professor

An outspoken and widely-published scholar, Ye’s work on rural left-behind populations first attracted public and policymakers’ attention to the topic in the early 2000s. His long-term research projects have been supported by the Ministries of Agriculture and Education, World Bank, Rockefeller Brothers Fund and a number of national policy research funds. His work has focused on rural social and agricultural development, labour mobility and left-behind populations. Citing his decades of fieldwork, Ye doubts that profits generated by large for-profit farming companies will ever ‘trickle down’ to rural development and the poor. He has emerged as a vocal critic of an increasingly corporatised farming sector, which has been encouraged under Xi Jinping’s rural revitalisation strategy.


china policy in the media

interview: China-US compromise ‘essential’ for Korea peace
CGTN | 31 July

Sixty-five years after the Korean War ended with a ceasefire, efforts are underway to finally reach a peace agreement between the Democratic People’s Republic of Korea (DPRK) and the Republic of Korea (ROK), following a historic summit in April between the two countries’ leaders. But how much progress has been made so far and what role can China and the US play? CGTN Digital spoke to Megan Cansfield, geopolitics analyst with China Policy, to get some insight.

soybeans on front line as trade war erupts
Caixin Global | 7 July

The tariff will also be damaging to China, said Even Pay, a senior agriculture analyst with Beijing-based advisory firm China Policy. ‘In the short term, China is likely to look to make up for soy imports from anyone willing to sell, with Brazil, already the world’s largest soybean producer, likely to benefit. But China’s big farms are much more dependent on bulk commodity feeds than many realize. Brazil can’t export enough to meet their needs, and they can’t easily make up the lost feed with scraps from elsewhere.’

How the China-US trade row might pave the way for the soybean Silk Road
South China Morning Post | 3 July

The longer the dispute with Washington goes on, the more these emerging sources will have to gain. ‘The trade war with the US is generating really good press for the agricultural investment strategy along the Belt and Road,” said Even Pay, a senior analyst at Beijing-based consultancy China Policy. “[The trade war has] made the case for diversifying import partners really concrete, so policymakers and companies that may have been sceptical before are now seeing a lot of evidence that over-dependence on any single supplier of agricultural products is risky.’


policy ticker highlights

gems from our feed of policy releases and domestic debate

geopolitics

US can’t use Russia to control China
Global Times | 19 July

context: Trump and Putin met in Helsinki on 17 July 2018, prompting domestic criticism and international speculation. Chinese analysts view Trump’s overtures to Russia with scepticism, tending to believe that Cold War sentiments still dominate America’s Russia policy.

America ‘playing Russia to control China’ is utter nonsense, writes Wang Haiyun 王海运 China Institute of International Strategy senior consultant. Trump commissioned longtime diplomat Henry Kissinger to visit Russia last year, followed by subsequent trips to China, revealing Trump’s desire to use Russia to control China, asserts Wang.

However, there is reason to believe that China–Russia comprehensive strategic partnership is the best it has been and will not be easily broken, Wang writes. China–Russia strategic cooperation is not only due to geographic proximity, but also shared interests in security and economic strategy.

The Trump­­–Putin summit became the subject of intense scrutiny from the US media. While both sides may indicate interest in various areas of cooperation, they are unable to touch on core interests including Crimea and economic sanctions. Remaining issues between the US and Russia are structural, says Wang, based on fundamental opposition on issues including visions for international order, development and national values. There are also differences in core interests, particularly regarding

  • NATO’s eastward expansion and strengthening of military deployment in Central and Eastern Europe
  • Ukraine’s crisis
  • sanctions against Russia

finance

PBoC–MoF disagreement sparks public debate

Jiemian (1), Jiemian (2), Jiemian (3), Jiemian (4) | 19 July

context: PBoC research director Xu Zhong’s incendiary criticism of MoF’s fiscal policy and a consequent rebuttal from an anonymous public finance practitioner have ignited a public debate.

Fiscal policies are not entirely under the control of Ministry of Finance (MoF); while MoF can make suggestions, the ultimate decision on fiscal deficit is left to the CCP Standing Committee, says Liu Shangxi 刘尚希 Chinese Academy of Fiscal Sciences (CAFS) president. As the economy is fraught with uncertainties, fiscal policies should bring more confidence, guide social expectations, and balance supply and demand by

  • shifting focus from aggregate quantity to structural adjustment
  • extending the emphasise from conventional economic sectors to public service related ones like education, healthcare, social security, etc
  • changing from macro-adjustment to public risk prevention

There are also different interpretations for active fiscal policies. By definition, a fiscal surplus is defensive, a slight surplus or deficit is neutral, and higher deficit is active; normally a 2 percent deficit can be called active fiscal policy in China, says Zhao Quanhou 赵全厚 China CAFS finance department director. The 2.6 percent deficit in 2018 budgeting is active fiscal policy, adds Zhao. Jia Kang 贾康 China Academy of New Supply-side Economics chief economist argues that counting on raising deficit and issuing bonds to facilitate de-leveraging overlooks the fundamental problem: soft budget constraints for local governments. Fiscal authorities are busy eliminating local debt, financing vehicles, and PPP projects, and they share the same orientation with People’s Bank of China (PBoC), but these efforts are often undercut in various ways, adds Jia.

Regarding tax cut effectiveness, tax revenue is the multiplication of tax base and tax rate; when the tax rate reduction is slower than tax base expansion, growing tax revenue will not render tax cuts ineffective, says Liu.

Practitioners in the financial sector insist that fiscal policies could do more. There is more space for fiscal policies, says Tang Jianwei 唐建伟 Bank of Communications chief macroeconomic analyst, because

  • increase of the US Federal Reserve policy rate adds pressure to RMB depreciation and suppresses the scope for monetary easing; de-leveraging and risk prevention also requires monetary policy to remain neutral
  • it is acceptable to raise the fiscal deficit from 2.6 to 3 percent, especially in light of the ongoing trade disputes with the US
  • China’s corporate and individual tax rates are higher than those of the US; they should be cut to improve competitiveness

PBoC cannot provide more liquidity and MoF cannot spend more; in the end, top leadership will have to weigh in and coordinate departmental interests, maintains Guan Qingyou 管清友 Rushi Financial Research Institute president.

agriculture

avoid over-industrialisation in place of rural revitalisation

Beijing Daily | 16 July

context: With the ‘National Rural Revitalisation Strategic Plan (2018-22)’ yet to be published, this editorial provides a sharp criticism of current state approaches to rural and agricultural development, such that has not been seen in print in recent memory.

In an editorial in Beijing Daily News, Ye Jingzhong 叶敬忠 China Agriculture University College of Humanities and Development Studies dean and professor warns policymakers to avoid a series of issues likely to challenge the implementation of the rural revitalisation strategy. Expressing concerns that top-down efforts to modernise and capitalise on agricultural production may intensify rural socioeconomic gaps, Ye argues

  • smallholder farming should not be eliminated
    • administrative and capital-intensive efforts to adjust the rural economy have regarded small-scale farming as a ‘remnant of backwards production methods’
    • it should be made clear that the key is to revitalise farming rather than corporate structures and assets that facilitate capital generation
    • alongside the promotion of modern agriculture, sufficient space must be maintained for the survival of small farming methods
  • industrialisation in the name of poverty alleviation and ag development should be re-examined
    • local demonstrations of development modes like ‘company+farming household’ benefit enterprises first, with farmers often bearing losses
    • focus on enterprise development may neglect critical tasks including infrastructure and cultural development, and environmental governance
  • land transfers should not be promoted blindly
    • despite policy and academic arguments, scaled-up farming is not always efficient
      • transferred land is often taken out of food production for higher profits
      • new operations may not absorb labour
    • use of economic power or other means of compelling farmers off their land must be avoided
  • rural lifestyles should not be eliminated
    • policymakers should not expect to remove traditional aspects of rural livelihood or otherwise ‘urbanise, modernise and commercialise’ the lifestyles of rural people
  • grassroots ‘three rural’ work is critical
    • reform of the agricultural technology extension system is needed
    • efforts to reposition public understanding and the value of agriculture and rural areas should be at the heart of rural revitalisation

society

Xinhua: elderly care, education, healthcare new drivers of China’s economy
Xinhua Net | 16 July

context: ‘Stimulating domestic demand’ is mentioned frequently in media following the recent Politburo directive to combine economic restructuring with expansion of domestic demand. Though originally published by Economic Information Daily, this piece has been widely discussed since it was reposted by Xinhua. Some analysts have questioned its tone, noting that people are suffering because of public services shortage, while the piece seems to only consider them consumers. It’s difficult to determine who in the leadership holds the views expressed here, but it is clear that a conversation has commenced.

Inelastic demand for elderly care, education and healthcare has soared, creating a new triad for economic development. Incentive policies will lead to high quality products and services, says Economic Information Daily.

The traditional elderly care model—wherein family members take major responsibility—is unsustainable when a single couple has care for four to six elders. The population above 60 years old was estimated at 241 million in 2017, with some 40 million disabled, leaving many families under enormous pressure. Already, growing middle-income consumers are showing a strong preference for professional elderly care services, says Zhao Baoquan 赵宝泉 Happy Maturity director.

Parents of millennials already invest heavily in their children’s education, and that commitment is expected to grow. The education industry attracted $13 bn in 2017, doubling that in 2016, notes Liu Chunliang 刘良春 Datong Education Group chairman. National Bureau of Statistics Economic Climate Monitoring Centre shows that urban families’ expenditures on education have seen 20 percent y-o-y increases for the past few years.

‘Healthy China 2030’ predicts a 16 tn healthcare industry in 2030, Economic Information Daily notes—a considerable jump from the 4.9 tn in 2017. The expectation is that growth will accelerate as the population ages, the rate of urbanisation climbs, and health insurance coverage expands.

governance

CCDI and NSC issue problem lists and order rectification
Xinhua Net, Central Commission for Discipline Inspection | 22 July

context: Central supervision is becoming a regular feature of Beijing’s anti-corruption efforts. Inspection periods have been lengthened by a month and feedback meetings have become higher-profile, with Central Leading Group for Inspection Work deputy head or members now present. Misbehaving cadres can no longer count on simply ‘waiting out’ campaigns.

Central Commission for Discipline and Investigation (CCDI) and National Supervision Commission (NSC) list problems uncovered in the first round of central inspections of Party organisations in 14 provincial-level regions, ten cities at sub-provincial level, eight central government agencies and eight state-owned enterprises. It demanded leading Party officials take responsibility and fix problems raised, even if the issue had surfaced under predecessors.

Cadres were reprimanded for

  • insufficient study of Xi Jinping Thought and the policies that accompany it, as well as weak Party building at the grassroots level
  • poorly implementing central directives on fighting organised crime and alleviating poverty
  • corruption, which remains severe and complex, and includes selling of official posts, forming local cliques and nepotism
  • fixing problems superficially

While the majority of criticism applied to all inspection targets, specific or particularly severe issues in certain provinces were singled out

  • bad influence of former leaders yet to be eliminated (specific mentions include Ji Jianye 季建业 Nanjing former mayor, and Bo Xilai 薄熙来 Chongqing former Party secretary)
  • Shanxi: weak on preventing pollution
  • Fujian: not adhering to the ideal ‘pure and warm’ government–business relations
  • Shandong: accountability too ‘soft’

trade

reform behind-the-border measures
People’s Daily | 18 July

context: United Nations Conference on Trade and Development defines ‘behind-the-border measures’ as non-tariff measures ‘such as competition, trade-related investment measures, government procurement or distribution restrictions’. As tariffs are lowered, behind-the-border measures are becoming the next trade battleground.

Behind-the-border measures will have a bigger effect on China’s next steps in opening up than traditional border measures, says Ye Fujing 叶辅靖 National Development and Reform Commission Foreign Economic Research Institute director.

Ye notes a global shift of focus from border measures to behind-the-border measures

  • negotiations over regional and multilateral trade treaties as well as bilateral FTAs are paying more attention to behind-the-border trade barriers
  • in the US–China trade war, the US points out China’s many behind-the-border policies, particularly relating to IPR, cyber security, information security, advanced manufacturing and independent technological innovation; the US (and some EU countries) claims that China has failed to provide national treatment by not addressing these behind-the-border issues

These complaints should be put in perspective, says Ye, noting

  • China is not alone in this; the US and European countries all have behind-the-border barriers to various degrees
  • in many cases, China’s domestic enterprises also face such barriers

To reform behind-the-border measures, Ye suggests that China should

  • make industrial policies more supportive on the supply side and more favourable to basic industries
  • borrow from developed countries when drafting policies regarding compliance, competition, IPR, investment, customs clearance and government procurement
  • deliver on its promise of financial opening up and address restrictive factors that affect the growth of foreign financial institutions in China
  • replace ex ante approval with stricter interim and ex post supervision for the safety and environmental requirements of projects
  • keep up with international standards for professional services, such as medical care, education, culture, architectural design and industrial design
  • promote China’s practices and standards in fields where it leads globally, including cross-border e-commerce and mobile payments

industry and environment

three-year action plan on air pollution
State Council | 3 July

context: The new three-year action plan comes after the previous plan, rolled out in 2013, expired at the end of 2017. The new plan expands PM2.5 reduction requirements to all cities nationwide. It also tightens regulations on VOCs and NOx emissions that are key to the formation of ozone pollution. The new plan still lacks specific targets on reducing GHG emissions, but the plan’s inclusion of the issue is significant nonetheless.

State Council released a new three-year air pollution action plan on 3 July, laying out targets for 2020

  • emissions of SO2 and NOx to drop by more than 15 percent compared to 2015 levels
  • cities with low air quality to reduce their PM2.5 concentrations by over 18 percent compared to 2015
  • number of polluted days to drop by more than 25 percent from 2015
  • Beijing to set a stricter air quality standard

Key regions are

  • Jingjinji and its surrounding regions
  • Yangtze River Delta
  • Fenwei Plain in Shaanxi and Shanxi provinces

Key tasks include

  • adjusting industrial structures
    • strictly controlling capacity expansion of ‘energy-intensive and highly polluting industries’
    • cleaning up ‘scattered, chaotic and polluting’ firms
    • fostering green industries
  • adjusting energy structures
    • switching more households to clean heating
    • capping total coal consumption in key regions
    • rectifying coal-fired boilers
    • encouraging more efficient energy utilisation
    • accelerating clean energy development
  • adjusting transport structures
    • raising the share of railroad in freight transportation
    • promoting new energy vehicles, eliminating old and polluting vehicles and upgrading vessels
    • upgrading fuel quality standards
    • controlling pollution from mobile sources
  • optimising land use arrangements
    • encouraging wind-breaking and sand-fixing
    • suspending or reducing production in open-pit coal mines
    • controlling dust pollution
    • enhancing integrated utilisation of straw and controlling ammonia emissions
  • launching special inspections targeting
    • pollution emissions in key regions during autumn and winter seasons
    • pollution from diesel trucks, industrial kilns and furnaces
    • volatile organic compounds (VOCs) emissions
  • enhancing integrated regional prevention and control mechanisms on pollution
    • improving regional air pollution control coordination mechanisms
    • developing emergency response measures to heavy pollution and implementing policies staggering production during autumn and winter seasons
  • improving environmental legislation
    • levying an environmental tax on VOCs emissions
    • increasing central budgetary and tax support
  • enhancing capacity building
    • improving environmental monitoring networks
    • enhancing environmental enforcement and inspections
  • clarifying responsibilities and increasing public participation

science and innovation

experts debate ‘the right to be forgotten’
China Economic Daily, Weixin, Legal Weekly | 24 July

context: As data breaches, information theft and identity fraud begin to carry more weight, state-affiliated research institutes argue for improved cybersecurity and privacy protection. Media is even broaching the ‘right to be forgotten’, which contrasts sharply with data trade, the social credit system, blockchain and other record-keeping efforts.

Closing an account on a mobile application is ‘extremely difficult’, said 75.9 percent of respondents in a survey by China Economic Daily. 62.9 percent indicated ‘serious concerns’ over information leaks, misuse or hacking. This clearly contradicts with Ministry of Industry and IT’s ‘Personal information protection regulations for telecommunications and internet users’, issued in 2013, which requires internet operators to allow users to deactivate and delete accounts, explains Zhao Zhanling 赵占领 internet law practitioner.

Unused but not deleted accounts are a potential leak of passwords, email addresses and user names, says Li Tiejun 李铁军 Cheetah Mobile security officer. Chinese internet users are willing to trade privacy for convenience, argues Robin Li 李彦宏 Baidu CEO. Internet companies should be allowed to trade, exchange and analyse user information, says Li. Without proper user consent such actions would violate individual privacy rights, argues China Social Sciences Net (CSSN).

The right to keep personal information private, enshrined in the General Provisions of Civil Law, provides a legal and practical basis for a ‘right to be forgotten’, but in practise, individuals can only get information purged from the internet with official approval, says Gao Wancheng 高完成 Southwest University of Political Science and Law.

Blockchain technology clashes with this, points out Legal Weekly. Everything included in the blockchain is non-deletable and non-revisable, advancing transparency over privacy, says He Baohong 何宝宏 CAICT Institute of Cloud Computing and Big Data.



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