trade

watching for

  • release of China’s independent WTO reform proposal
  • trade boost in 2019 economic work plans
  • new development in the Qualcomm vs. Apple case in China

tech front of the trade war

While domestic media framed the arrest of Meng Wanzhou 孟晚舟 Huawei CFO as a compliance issue rather than a function of the trade dispute, the case will certainly affect ongoing negotiations with the US. Lu Kang 陆慷 MFA spokesperson kept options open saying China’s response will depend on how Canada and the US manage the situation.

Despite China’s effort to prevent the Huawei case from derailing trade negotiations, Trump said he would use it to bargain up—mirroring tactics China often uses. In an attempt to address diverging domestic and international media coverage of the 90-day truce, a MofCOM-affiliated researcher interpreted China’s offer to approve the Qualcomm-NXP merger case, if it was submitted again, as further politicising trade. Tit-for-tat retaliations leave multinationals with little comfort, despite invocations of open trade and multilateralism. The unusual granting of a preliminary injunction by a Fuzhou court against Apple products is hard to read as other than geopolitical messaging. While domestic media hail it as progress on China’s legal enforcement of intellectual property rights, it also shows yet again Beijing’s tendency to use market access as a bargaining tool.

Data localisation requirements are trade barriers, rules the US government, vowing to target them. Growing US scrutiny of China’s technology firms provides a template for its allies to follow suit. Japan plans to revise rules on government procurement to exclude products from Huawei and ZTE, citing concerns over intelligence leaks and cyber attacks. MFA responded with some shrillness, reiterating Japan’s Chief Cabinet Secretary’s statement that the revision will not target any specific company and claiming to monitor follow-up development. November import and export data show a clear end to front-loading and adds more pressure for China to prevent tariff hikes within the 90-day ceasefire. Ministry of Finance announced on 14 December that it would halt tariffs on US-made automobiles and related parts—covering 211 tax items—for three months starting 1 January 2019. Following Meng’s bail and China’s move to warm up bilateral relations, the ball is now in the US’ court.

tags: technology transfers, research and development, standards and conformity assessment, cybersecurity, trade facilitation, trade barriers, duties and tariffs

in other developments…

  • SAMR released business registration regulations to guide the E-commerce Law, which comes into effect 1 Jan 2019. Exceptions in the regulation might cause enforcement problems for grassroots e-commerce retailers
  • State Council announced 40 measures to improve the Hainan Pilot Free Trade Zone, intended to boost its ranking on the World Bank’s ease of doing business index
  • MofCOM said it will soon release an independent and detailed WTO reform plan

local officials checking on poverty conditions in Guangnan county, Yunnan

governance

watching for

  • changes in focus of the anti-corruption campaign
  • reinvigoration of ideological emphasis and appearance of new slogans
  • national-level moves to support military families and veterans

inattentive governance criticised

A review of 2018 anti-corruption efforts cites success in taking down ‘tigers’, or high-level corrupt officials, and called for more focus on personnel selection, administrative approvals, resource exploitation and funding issues. But for others, grassroots graft is the pressing problem, and ‘local emperors’ who administer economies for personal profit should be key targets. By homing in on corruption in areas such as poverty alleviation, land appropriation and medical treatment, says one local commentary, cadres can better win public trust.

Apart from being urged to be politically clean, cadres were also told to pay more attention to local concerns, especially among the poor. Sharp words were levelled against those unaware of conditions in villages under their remit, and those who distributed poverty alleviation funds carelessly. The corrective, notes People’s Daily, rests in cadres studying their surroundings and forging closer relations with villagers. In a similar vein, local officials were reminded that petitions are barometers for social conditions and public opinion, and that problems should be preempted before they become severe.

More coverage was given to military and veterans affairs, both successes and shortcomings. Breakthroughs in military training were lauded, and local efforts are underway to ensure military personnel receive respect and remuneration. Fujian amended regulations to extend preferential treatment for stationed soldiers. Yet with disgruntlement turning violent in Shandong, some tensions remain unresolved. As 2018 fades, the overall theme is for officials to attend to basic concerns at the street and village level, and achieve a clearer sense of what needs to be done for residents—suggesting Beijing is increasingly wary of the economic slowdown’s social impact.

tags: PLA, stability maintenance, anti-corruption

in other developments…


 

pharma stock prices plunge after procurement reshuffle

society

watching for

  • focus on living standards at the Central Economic Work Conference and the Conference celebrating the 40th anniversary of the Reform and Opening-up
  • progress following decision on removing administrative barriers for private aged care providers
  • National Health Committee to issue the first national complementary medicine list
  • China Scholarship Council to drop masters students funding from 2019

centralised buying to bring down low-end generic drug capacity

National Medical Insurance Administration (NMIA) announced the bidding results of its centralised drug procurement pilot: prices on 25 of 31 eligible products were cut an average of 52 percent, including 3 patent drugs and 22 generics completing bioequivalence (BE) testing. In response to the market shock, Sun Chunlan 孙春兰 vice premier insisted government intervention in bidding and procurement will respect market mechanisms. NMIA promised to guarantee winning tenders their market share and payment transfers, as well as clinical use of enlisted drugs.

The procurement program is a supply-side reform measure for the pharma industry, comments Securities Daily, as price cuts will force small-scale low-end generic manufacturers and zombie generic drug licences (mostly issued 2002-07) to exit the market. By disincentivising drug markups, the program can reduce medical products’ production, circulation, marketing and financing costs, says Zhong Dongbo 钟东波 NMIA Department of Pricing and Procurement director. As drugmakers no longer need to pay physicians and practitioners to raise sales, it also helps reduce inappropriate prescriptions and clinical drug abuse, and prevents false insurance claims, adds 21 Century Business Herald.

The program will require supplementary measures to succeed. In combination with adjustments in BE testing, it penalises overly expensive domestic generic drugs and off-patent imported drugs, enabling indigenous pharma R&D and innovation to develop, says Hu Jiqiang 胡季強 Comba Pharmaceuticals president. The state also took actions to break up drug-addicted hospitals and consolidate retail pharmacies. As NMIA may lack enforcement capacity, WeChat account Jianshiju recommends procurement be completed by independent legal entities linking medical insurance departments and public hospitals. Xu Jiaxi 徐佳熹 Industrial Securities chief analyst opposes the ‘unreasonable’ price cuts and calls for updating clinical evaluation regulations for medical products accordingly, worrying that drugmakers may end up in a ‘race to the bottom’, exchanging larger market share with poorer product quality. Xu also argues for simultaneously reform of compensation and evaluation regimes for health practitioners, arguing that drug markups cannot be addressed effectively until doctors are paid well.

tags: health insurance, pharmaceuticals, biotech R&D, supply-side reform

in other developments…


BRI friends: Chinese, Afghani and Pakistani foreign ministers meet in Kabul, 15 December 2018

geopolitics

watching for

  • greater Chinese presence in the Arctic given Russian moves to regulate shipping
  • efforts to appease multinational tensions in wake of Huawei affair and slowing foreign investment
  • rising profile of Wang Yi and MFA in managing BRI’s image and potential overcommitment

policy compromise or bilateral victory?

Foreshadowing adjustment to its development strategy in response to US demands, including the oft-attacked Made in China 2025 proposal, Beijing’s response rates as ‘measured’. Compromise works to China’s advantage, argues Global Times, as China–US trade talks push China to deepen its reform and opening policy, furthering Beijing’s core interests. Opening the market, protecting intellectual property and creating a fair market environment are all necessary to deepen reform and opening and ensure growth. These policy shifts should be made with or without the China–US trade war, so domestic audiences should not be oversensitive about China making compromises.

Compromise is necessary, the Global Times continues, because Washington’s promises to transform the international order are unfeasible and unrealistic. Building a new international order that simultaneously harms China, Russia and Iran, the Global Times argues, makes more problems for Washington’s foreign policy goals.

Scholars and policymakers are articulating China’s alternate vision for a new global order via the Belt and Road Initiative (BRI) with increasing detail. BRI is a central means of crafting a nonpolar, decentralised system of global governance, writes Zhao Lei 赵磊 Central Party School Institute of International Strategy BRI Institute director. Core BRI goals are participation in global governance and provision of public goods, Zhao notes, which benefit both China and the world.

tags: belt and road 一带一路, Made in China 2025 中国制造 2025, US/Canada 美国/加拿大

in other developments…


profiles

Ge Jun 戈峻 | former Apple and Intel vice president China

Multinationals still struggle in China, complaining of selective legal enforcement, invisible market barriers and unfair competition. Ge considers the long-awaited market access negative list overly abstract and lacking in enforcement clarity. Inconsistencies between global and domestic technology standards also add to multinationals’ R&D and compliance costs. Lastly, Ge points out that industrial policies might produce inefficiencies and render final products less competitive. As an example, Ge says the Cybersecurity Law safeguards national security, but prevents consumers from enjoying high-quality services from overseas. Ge calls for policy makers to balance competing interests, such as national security and technology neutrality, industrial policy and the market economy, as well as fair use and IP protection.

Chen Shiqu 陈士渠 | Ministry of Public Security Criminal Investigation Bureau deputy director

An avid user of social media, Chen has a doctorate in criminal procedure law. From 2007-13 he was director of the Ministry of Public Security Abduction Office, and oversaw the rescue of more than 100,000 women and children nationwide. In his frequent television appearances, Chen is outspoken about the rise of new types of crime, especially financial fraud, and warns of the growing power of organised gangs.

Zhong Dongbo 钟东波 | National Medical Insurance Administration (NMIA) Department of Pricing and Procurement director

An experienced public health policy maker, Zhong was appointed director of the NMIA Pharmaceutical Price and Procuring and Bidding Bureau in October 2018 after four years at the Beijing health bureau. Zhong advocates for public hospital reform following the ‘Sanming Model’, a Fujian initiative which provides new solutions to break the link between drug markups and public hospital financing. Zhong opposes excessive profit-seeking in public hospitals. The solution, he argues, is to set up a fixed compensation system for different types of medical staff to eliminate unnecessary examinations and prescriptions.

Zhao Lei 赵磊 | Central Party School Institute of International Strategy BRI Institute director

As a BRI expert, Zhao theorises about the interaction between Chinese foreign policy aims and geopolitical competition. The Belt and Road needs to find an appropriate response to coordinated development plans of the US, Japan, and India for the Indo-Pacific, writes Zhao. Geoeconomic competition is a concern, not least India’s role in Iran’s Chabahar port development, and ‘Asia–Africa Growth Corridor’. Despite competition from other powers, China’s approach and strategy will, argues Zhao, produce better results than the US. In Afghanistan, for example, Zhao argues that rural development will pose a more durable solution to long term security woes.


in case you missed it…

cp.signals—domestic policy movement
bumps in the road
e-commerce law: daigou… going… gone

cp.positions—audit of shifts across policy sectors
economy:interprovincial zones and more…
governance: tariff truce and more…

cp.observer—monthly roundup
november: summit season
october: coping with the trade war