roundup from our portfolios

The five-year rural revitalisation strategic plan, anticipated since March, was at last published by the Central Committee and the State Council 26 September. The plan pushes modernisation and upscaling of the farming sector as well as broader industrialisation efforts in rural areas—some fear local officials will push out small farmers in favour of large, visible, impractical, homogeneous and debt-laden projects in a blind fervour to revitalise. We expect detailed action plans from local governments and substantial commitments of resources from public and private financial institutions in coming months.

An amendment to the Personal Income Tax Law was ill-received by the public. Many households will pay more despite rate cuts, as merging income taxes will make it harder to evade liabilities by splitting earnings among lower tax categories. As part of the broader government overhaul, social insurance and tax collection are also to merge by 1 January 2019. This implies both stricter collection and higher actual rates, as companies will no longer be able to submit different figures to different authorities. Financial pain will be felt most severely by SMEs as they are the least compliant.

Li Keqiang 李克强, Liu He 刘鹤 and other top leaders have been pledging support for SMEs as concerns grow that economic tensions may bring a new round of ‘state advancing at the expense of the private sector’. Tax incentives, better IP protection and a renewed ‘mass entrepreneurship and innovation’ campaign are part of the state’s response. But without structural changes to SOE privileges, SMEs will still be the first to take the hit from a weak economy.

State Council retaliated against US tariffs, launching US$60 bn tariffs in response to Trump’s US$200bn. The government also filed WTO complaints on top of an earlier request to authorise US$7 bn in sanctions for US failure to comply with WTO rulings on anti-dumping duties. Facing halted trade talks and bleak export markets, the government is stepping up a hunt for alternatives. President Xi’s first-time attendance at Russia’s Eastern Economic Forum was a case in point. So was an aid package pledged at the 3-4 September Forum on China–Africa Cooperation to finance exports to Africa.

State visits by Venezuela’s PM Nicolas Maduro and major African leaders yielded many opportunities for diplomatic pageantry in September. Promises to expand and refurbish Belt and Road projects were renewed in the face of a wave of political opposition in recipient states, including Malaysia, Pakistan and Zambia. While Beijing showcased its diplomatic ties, it also ramped up military and economic cooperation with Russia through the Vostok 2018 military games and the Eastern Economic Forum.

At home, the bid to rejuvenate the Party remains a dominant theme. With education reform still under debate, Xi said in a major 10 September speech that its goals will be equality and a socialist curriculum. A Politburo meeting near month’s end focused on Party branch work and the newly-released National Cadre Education and Training Plan for 2018-22 reminded officials that Party training should endeavour to produce loyal Marxists. In the legal sphere, the National People’s Congress released the 5-year Legislation Plan, which marks out lawmaking priorities and newly developing areas, such as e-commerce and civil–military integration, where standards and codification are seen as necessary.

Health care initiatives continued to occupy a good deal of the social policy space. The State Drug Administration sought to rally itself and the pharmaceutical industry after the recent vaccine scandals, clarifying who had supervision rights and responsibilities for local drug production and quality control. Three agencies concerned with family planning regulations were dismantled, while medical services continued to move online.

The second annual plan for winter industrial production controls in China’s largest steel producing region introduces more targeted, flexible restrictions. In early September, rumours that the final ‘Action plan for controlling air pollution in Jingjinji during 2018-19 heating season’ would remove one-size-fits-all production controls and loosen targeted reduction of heavy pollution days caused a sudden drop in steel futures. The final policy was released 27 September, confirming those rumours and giving localities autonomy to set their own reduction goals. The document also emphasised differentiated regulation, meaning producers meeting higher environmental standards will be subject to laxer or even no restrictions depending on emissions efficiency.

The National Leading Group for Sci-tech System Reform and Innovation System Construction met 5 September to prepare for a new national sci-tech development plan. Megaprojects will feature prominently in the plan, with Ministry of Sci-Tech issuing a public tender for the AI 2.0 megaproject, and Hefei, Anhui cementing its role as the leading city in quantum computing with a 100 bn research centre.


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september policy movers

policy professionals in and out of the establishment

Huang Wei 黄炜 | State Grain and Reserve Administration deputy director general

Formerly China Securities Regulatory Commission (CSRC) vice director, Huang was appointed to a new role as deputy director general of SGRA in early September 2018 in a move likely linked to an upcoming national inspection of grain reserves. A finance law expert, Huang oversaw revision of Securities Law during his tenure at CSRC, as well as adjustments to capital market regulation and improvements to the supervision system for IPOs and stock issuance. He served on CSRC’s inspection bureau and as part of a special inspection corps involved in identifying, investigating and penalising corporate fraud in a series of major cases in recent years. A central figure in the delisting of Dandong Xintai Electric, Huang appeared in court during the proceedings, calling for strict penalties and attracting public support.

Ding Yuxiang 丁宇翔 | Beijing First Intermediate Court justice

Through commentaries in People’s Daily, Ding has weighed in on the challenges to privacy that information technology poses to law, as well as the need for legal remedies to protect expression of reasonable opinions on the Internet. Ding asserts that ‘information technology itself is neutral, the key is how to use it.’ He argues that the absence of a comprehensive Internet privacy policy means justices need to make full use of the rule of law and existing legal resources to help protect personal information. Ding maintains that the judiciary needs to address the way trials tend to expose personal information rights during proceedings, often rendering them subordinate to State interests. This is crucial because an information security governance system has yet to be fashioned. Until that time, government agencies, Ding insists, need to pay as much attention to protecting privacy as they have to nurturing the information technology industry.

Chen Jingfu 陈靖夫 | Shanghai Ganglian steel business deputy manager

A steel market analyst for over 15 years, Chen argues that output controls must be relaxed in the face of trade frictions, rising CPI and high employment pressure. Environmental regulations have driven up prices for raw materials such as steel and cement, leading to an unequal share of profits between upstream and downstream industries. Suffering from high production costs and little support, SMEs in downstream sectors are unhappy. Relaxing output controls could relieve pressure on SMEs, which account for more than 90 percent of firms and provide over 80 percent of urban employment.

Fan Peng 樊鹏 | Chinese Academy of Social Sciences Institute of Politics

Political scientist Fan writes extensively on state authority, market power, institutional change, and public decision-making. He argues for employing big data, AI and other new digital information technologies in social governance, consultation and planning, surveillance, social stability maintenance and risk management. Failure to embrace these technologies may put governance at risk, he worries. Fan advocates ‘political inclusion’ of hi-tech firms, absorbing them into consultative governance; he also recommends deep collaboration between public and private actors in data sharing, smart city projects, smart transportation and the social credit system.


policy ticker highlights

gems from our feed of policy releases and domestic debate

geopolitics

Venezuela visit brings ‘real benefits’
Global Times | 14 September

context: Venezuela is mired in economic and political crises, and President Maduro survived an assassination attempt in early August. The timing of Maduro’s visit to Beijing from 13-16 September, notes Global Times, has led international observers to speculate that the visit was intended to generate more Chinese loan and aid agreements with Venezuela.

Cooperation between China and Venezuela is mutually beneficial and win-win, says Wang Youming 王友明 China Institute of International Studies Developing Countries Institute director in an interview with the Global Times. This cooperation is based on current conditions, he states, and does not rely on past loan or aid precedents.

Venezuela’s current predicament is a structural contradiction, says Wang, difficult to resolve in the short term but not impossible to address. At present, Maduro’s domestic support is still stable, as he remains popular with a base who have benefited from state welfare policies. Wang argues that recent currency, wage, and exchange rate reforms convey Maduro’s resolve to address these longstanding issues, and that increases in international oil prices will assist with Venezuelan reforms.

Geng Shuang 耿爽 Ministry of Foreign Affairs spokesperson said at a press conference on 13 September that pragmatic cooperation between China and Venezuela has grown rapidly, bringing ‘real benefits’ to the two peoples.

finance

tightening social insurance fund collection further burdens SME financing
The Paper, Jiemian | 5 September

context: The taxation super-agency will not only be in charge of central and local tax collection, but also the collection of social insurance funds. In practice, this consolidation raises compliance costs for SMEs and makes short-term pain more acute in face of a slowdown.

Starting on 1 September 2018, responsibility for social insurance fund collection will start to be transferred from social insurance bureaus to tax administrations, with the transfer fully implemented by 1 January 2019. While this reform will help replenish social insurance fund shortages and benefit long-term public welfare, tightening collection will significantly raise small and medium enterprises (SME) operation costs, suppress profits, and cut household income in the short term, according to Guotai Junan Securities report.

The reform is premised on two considerations: the large social insurance fund gap and poor enterprise compliance. As society ages, the funding gap will only grow, reaching 1.8 tn in 2020 and 3.2 tn in 2030, estimates the report. China’s total social insurance fee to wage ratio is 29.29 percent, much higher than the world average 16.26 percent, shows the report. This creates strong incentive for firms, especially SMEs, to evade submission. Social insurance bureaus, on the other hand, are constrained in resources and information to investigate firms’ submissions. For example, an enterprise may register fewer employees and wages in the social insurance system than in the taxation system. Integrating the two systems will mitigate the issue and make it harder for enterprises to arbitrage information asymmetry.

Only 27.05 percent of firms are fully compliant, and firms submitting only baseline insurance account for 31.7 percent of the total, according to ‘2018 Enterprise Social Insurance White Paper’. State-owned enterprises and listed companies align with requirements; most non-compliant ones are SMEs, reports The Paper. Considering the already huge management difficulties facing SMEs, this measure is too drastic and may threaten their survival, argues Qi Chuanjun 齐传钧 China Academy of Social Sciences researcher.

agriculture

Central Committee, State Council release long-awaited rural revitalisation plan
Xinhua Net, Economic Information Daily | 26 September

context: The long awaited five-year rural revitalisation strategic plan was first proposed at the 19th National Party Congress and foreshadowed by an ambitious February No. 1 Document on rural affairs. The plan was declared to be a ‘historic task’ essential to accomplishing China’s modernisation goals and building a moderately prosperous society. By 2020, the plan calls for the institutional framework and policy system of the strategy should be built. Specific action plan by local governments, and responses from public and social capital are expected in coming months.

The ‘Rural revitalisation strategic plan (2018-22)’ was released by the Party Central Committee and State Council 26 September. The total of 37 sessions outline periodic mandates and key tasks during 2018-22 toward the strategy’s overall goal of building rural areas with thriving businesses, pleasant living environments, social mores and civility, effective governance, and prosperity. As aspects of thriving rural businesses, agricultural modernisation and rural industrial revitalisation were prioritised with major tasks and corresponding measures specified, including

  • ag modernisation
    • safeguarding ag production capacities
      • optimising food security strategic system
      • protecting basic farmlands
      • promoting ag equipment and informatisation
    • accelerating ag transformation and upgrading
      • optimising ag productivity layout
      • promoting ag structural adjustment
      • consolidating advantageous industries
      • guaranteeing the quality and safety of ag products
      • developing ag brands
      • buildingnew pattern of ag opening-up
    • building modern agricultural operation systems
      • consolidating and optimising rural basic operation systems such as rural land contracting system
      • developing new ag operators
      • innovating rural collective economy
      • connecting small farmers to modern ag operation systems
    • strengthening technologies supporting agriculture
      • strengthening ag sci-tech innovation capacity
      • building ag sci-tech innovation platforms
      • accelerating transformation and application of ag sci-tech achievements
    • optimising ag supporting system
      • increasing ag-supporting investment
      • reforming major grains purchasing and reserve system
      • strengthening ag risk management capacities through ag insurance and future products
  • rural industrial revitalisation
    • promoting the deep integration of rural industries
      • discovering new functions for agriculture and rural landscape
      • developing new business models in rural areas
    • building interest linkage mechanisms
      • increasing farmer participation
      • innovating income-sharing mechanisms
    • stimulating entrepreneurship
      • improving service system for innovation and entrepreneurship
      • building incentive mechanism for rural entrepreneurship

Focusing on the inputs of labour, land and capital, the plan also makes arrangements to speed up permanent urban residency for rural people moving to cities, strengthening talent support, infrastructure and social service support, guaranteeing land supply for the strategy’s implementation, diversifying sources of investment, improving financial support and other tasks.

Rural infrastructure conditions, particularly natural gas supply and rural sewage treatment facilities, are the major obstacles to revitalising industry and improving living environment in rural areas, Li Guoxiang 李国祥 Chinese Academy of Social Sciences (CASS) Rural Development Institute told Economic Information Daily.

Government should increase investment on rural social security system building to improve healthcare conditions in rural areas, says Zhu Qizhen 朱启臻 Chinese Agricultural University, cited by the Economic Information Daily. He also highlights that in addition to public investment, there is large space for social capital to participate in rural revitalisation.

The plan is fiscally feasible, identifying sources of funding for each key project, says Dang Guoying 党国英 CASS Rural Development Institute. She advocates a close connection between poverty alleviation and rural development.

society

Xi keynote at education conference urges equality though reform
People’s Daily | 17 September

context: How Xi addresses the widely acknowledged need for education reform is a closely watched issue, in government and society, and especially by localities. While recent months have seen efforts to further cement Party control, many officials and parents remain optimistic that Beijing will continue to support more of the far-reaching changes promised a year ago. President Xi Jinping’s appearance at this year’s National Education Conference shows his commitment to upgrading education, though perhaps not the deep-and-broad reform package some were hoping for.

On 10 September 2018, President Xi Jinping 习近平 delivered the keynote speech at the annual National Education Conference. He emphasised the importance of education reform, and proposed removing systematic barriers to education modernisation.

To ensure educational equality, People’s Daily said that Xi’s speech indicated China should

  • establish lifetime education programs
  • offer equal education to every individual, rich or poor, city or rural, regardless of gender, region or ethnicity
  • differentiate education for people with different talent and potential
  • set up open and dynamic education processes to enrich education and career paths

To promote education reform and remove barriers, China will

  • revise the education evaluation system to downplay scores, credentials, and mania surrounding publication of academic papers without regard to quality
  • promote industry-university-research cooperation to boost economic growth
  • encourage Chinese–foreign educational cooperation programs

governance

intermediate court justice: online speech needs to be regulated by the law
People’s Daily | 13 September

context: Party oversight of the judiciary remains an unquestioned principle of the legal system, even as the field professionalises. At the same time, the complexity of society and widening range of legal options for citizens have sparked discussions about the role of the law in regulating new forms of communication, including social media. The commentary below implies that legal measures, rather than political directives, should be the way forward.

In a People’s Daily commentary, Ding Yuxiang 丁宇翔 Beijing First Intermediate Court justice argues for employing the law to mark out boundaries for online speech. If factual statements and opinions are essentially true, reasonable and do not cross legal lines, the law should protect them, says Ding. But if ‘facts’ involve divulging the personal information of others and opinions become personal attacks, the law should not.

Receiving notice of infringements, Internet platforms will invariably delete, block or disconnect, as they know they have the ultimate responsibility for speech on their platforms. Yet if boundaries for rights are not set up or standardised, everyone can become a victim and that creates social distrust. To build a healthy and mature online space for public opinion, Internet work should operate under an explicit legal framework.

trade

WTO affairs think tank proposes solutions to US–China trade war
Weixin | 16 September

context: President Trump has repeatedly accused the WTO of treating the US ‘unfairly’ and has threatened to pull the US out of the organisation. It has been suggested that China prepare for uncertainty and seek to solve trade tensions with the US bilaterally.

As US–China trade tensions escalate, an article published by Shanghai WTO Affairs Consultation Centre suggests ways in which the two countries can improve trade relations and reduce current investment control.

In summer 2017, the two countries signed the 100 Day Action Plan and agreed to relax market access restrictions for certain industries. Similar measures can be taken now to normalise US–China trade relations and direct them towards a positive end, says the Centre.

The two countries should also formulate their own bilateral trade rules. The multilateral trade rules issued by the WTO are insufficient to solve US–China tensions. On the other hand, bilateral rules are virtually non-existent.

Current WTO agreements can only maintain the overall international trade order. If China and the US start disobeying relevant rules in these agreements, other countries might follow suit. Therefore, China and the US should make sure they observe WTO rules and resort to the dispute settlement mechanism to resolve disputes instead of taking unilateral action.

In terms of intellectual property theft, some of China’s actions have indeed crossed boundaries, especially certain clauses in the Made in China 2025 initiative. China should be aware that its government will disturb market order by interfering with sales and purchases. On the other hand, other countries should make unified complaints against China’s actions through the right channels.

In response to Trump’s stubbornness, Beijing should put forward its own terms and respond to complaints related to regulatory barriers, subsidies and opaque administrative environment, argues the Centre.

industry and environment

Jingjinji 2018-19 heating season pollution control plan released

Ministry of Ecology and Environment | 27 September

context: This final version confirms previous rumours that the state would remove heating season industrial production controls from the central plan this year. The environmental agency was accused of imposing blanket output cuts on companies last year, causing economic pain. The new plan aims to be more targeted, granting localities more autonomy in deciding the scale of production suspensions.

On 27 September, twelve agencies along and six local governments including Beijing, Tianjin, Hebei, Shanxi, Shaanxi, Shandong and Henan, jointly issued ‘Air pollution control plan for Jingjinji and surrounding areas autumn and winter 2018-19’.

The policy stipulates

  • air quality targets for Jingjinji and surrounding areas for 1 Oct 2018 through 31 Mar 2019
    • concentrations of fine particulate matter (PM2.5) should decrease by around three percent y-o-y
    • number of days with severe pollution should decrease by around three percent y-o-y
  • key tasks are
    • controlling and eliminating capacity of ‘energy-intensive, high-emission industries’ including steel, glass, cement and construction materials
    • by end September 2018, carrying out a new round of inspections on ‘scattered, chaotic and polluting’ firms
    • starting 1 Oct 2018, ‘strictly’ enforcing special discharge limits in thermal power, steel, petrochemical, chemical, non-ferrous metals and cement industries, as well as industrial boilers
    • ‘orderly’ implementation of ultra-low emission standards in steel industry
    • by end December 2018, completing reviews and issuing pollutant discharge permits for ceramics and secondary non-ferrous metals
    • drafting plans to replace low-grade coal with cleaner heating fuels including renewables and gas
    • eliminating or upgrading coal-fired boilers
    • boosting rail transportation
    • increasing adoption of new energy vehicles and vehicles complying with Stage 6 emission standards
    • controlling dust pollution
    • suspending new open-pit coal mine projects
    • controlling outdoor straw burning
    • carrying out special inspections targeting
      • diesel trucks
      • industrial kilns and furnaces
      • volatile organic compound (VOC) emissions
    • enhancing emergency response to heavily polluted days
    • implementing ‘differentiated’ staggered production policies which allow each province to individually decide production suspension during winter heating season
    • improving environmental monitoring network
    • setting up automatic monitoring of pollution sources
    • strengthening technological support and environmental enforcement
    • enhancing central environmental inspections and special inspections of air pollution
    • ensuring natural gas and electricity supply

science and innovation

state council clarifies MoST’s mission
Weixin | 11 September

context: This new plan institutionalises MoST’s mission as a strategic planner, research coordinator and innovation facilitator. These changes are a direct outcome of the March 2017 ministry reshuffle.

State Council issued ‘Plan for responsibilities, organisation and staffs of Ministry of Sci-Tech (MoST)’, reports Science and Technology Daily. The restructuring underlines

  • R&D investment priorities
    • frontier technologies
    • strategically important technologies
    • sci-tech for agricultural and social development
  • a new organ to speed up research commercialisation, through
    • a national technology transfer system
    • regional coordination
    • national innovation demonstration zones and high-tech zones
  • state-market rebalance
    • promote market-driven innovation
    • MoST to contribute to
      • overall planing
      • resource allocation
      • ex post supervision and evaluation
  • international involvement
    • civil-military integration
    • ‘Belt and Road’ sci-tech partnerships
    • global recruitment policies

MoST’s main responsibilities cover

  • design of innovation strategies
  • allocation of R&D funding
  • key research projects on basic and applied sciences and state laboratories
  • megaprojects, NKPs and major international science and engineering projects
  • high-tech upgrading in agricultural and manufacturing sectors
  • technology transfer and commercialisation
  • high-tech parks and zones
  • academic integrity and regulatory compliance
  • global exchange
  • talent recruitment and training
  • national awards
  • management of Natural Science Foundation of China (NSFC)
  • management of Science and Technology Daily

Internal organisation

  • General Office
  • Departments of
    • Strategic Planning
    • Policies, Regulation and Innovation System
    • Resource Allocation and Management
    • Compliance and Integrity
    • Megaprojects
    • Basic Research
    • High-tech Development
    • Agricultural Technology
    • Social Development (Note: covering bio-tech, pharmaceuticals and life sciences)
    • Technology Transfer and Regional Coordination
    • Foreign Experts Affairs
    • Talent Recruitment
    • International Cooperation (Office of Hong Kong, Macau and Taiwan affairs)
    • Personnel

Staff

  • minister
    • Wang Zhigang 王志刚
  • four vice ministers
    • Wang Wei 黄卫
    • Zhang Jianguo 张建国
    • Xu Nanping 徐南平
    • Li Meng 李萌
  • 67 departmental heads
  • 364 staff members


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