science and innovation

watching for

  • requirements for UAV producers
  • CAC to issue blockchain management regulations

2019 MIIT priorities: 5G, VR and IoV

Ministry of Industry and Information Technology (MIIT) 2019 priorities include tighter fuel economy standards for autos, spurring private investment in sci-tech innovation and building an identifier system for the industrial internet. Both MIIT and the Central Economic Work Conference called for faster 5G roll-out, as the technology is scheduled to go live in 2019. But in the short term, carriers will only offer 5G services in dense urban areas, and at lower speeds and higher latencies than initially advertised, says Wei Leping 韦乐平 MIIT Telecommunications Sci-Tech Committee vice-chairman. Network construction is expensive and estimated to cost 1.2 tn, says Wei, and new revenue streams are still years away.

Virtual reality (VR) and autonomous vehicles, two major markets for 5G, are also among MIIT 2019 priorities, with the ministry issuing ‘Guiding opinions on VR industry development’ on 25 December. The market for VR is expected to increase five to six-fold to reach 90 bn by 2020, according to China Centre for Information Industry Development. Still, the sector lacks original IP, adds China Academy of Information and Communications Technology (CAICT): too often, firms treat VR as a submarket of the mobile phone industry, or follow overseas trends. MIIT also issued an action plan for an Internet of Vehicles, to which 60 percent of cars sold in 2020 should connect. Half of those cars need to have at least assisted driving (L2) technology. Launching a smart and connected vehicle national manufacturing innovation centre is next on the agenda.

Better IP protection and data regulation will be key to many of these goals. A Patent Law revision that will increase penalties has been submitted to the National People’s Congress. CAICT recommends an Individual Data Protection Law comes next to regulate the collection, use and trade of personal information with a tiered system, balancing individual rights with innovation. It would complete the internet’s regulatory framework, says CAICT, together with the Cybersecurity Law and planned laws on data security, telecommunications and encryption.

tags: chips and smart devices 芯片与智能设备, internet infrastructure 互联网基础设施, autonomous vehicles 智能网联汽车, patent 专利, cybersecurity 网络安全

in other developments…

  • governing blockchain requires regulations, support policies, code and a dedicated agency, argues Su Yu 苏宇 People’s Public Security University of China Law Department
  • enable firms to compete for defence contracts, breaking the monopoly of state-owned military contractors, argues Tan Yungang 谭云刚 People’s Air Force General Armament Representation Office senior colonel
  • confusion over IP ownership stops researchers from commercialising their work, argues Zhang Mingshen 张铭慎 NDRC Chinese Academy of Macroeconomic Research Institute of Economics

Xi Jinping meets model ag workers before CRWC


watching for

  • outcomes from US–China trade consultations, reportedly focusing on ag
  • long-term plans to address African swine fever
  • publication of the annual No. 1 Document on ag and rural policy

ag sidelined in rural reform agenda

Growth is slowing with just one year remaining to win Xi’s siege on poverty (see cp.signal). In response, top policymakers have placed rural development near the top of the 2019 policy agenda. Official reports from the Central Economic Work Conference listed rural revitalisation among key priorities for the coming year. Page space devoted to rural revitalisation doubled since last year, elevating it alongside traditional economic initiatives on high quality growth, fiscal and monetary policy, and investments into high-tech and service sectors. The Central Rural Work Conference (CRWC), held 29–30 December 2018, laid out a detailed agenda spanning rural anti-poverty efforts, village housing and infrastructure upgrades, and further industrialisation of the agricultural economy. Little time was devoted to traditional themes like boosting staple crop output, policymakers instead pushing a shift toward livestock feed and cash crops, boosting non-farm employment through new rural business categories, and accelerating rural land reform efforts. CRWC also reiterated an earlier call for rural areas to be prioritised in four government processes, namely assignment of cadres, allocation of resources, investment of public funds, and provision of public services.

Rural policy is now, it seems, as concerned with macroeconomic development as food security. Han Changfu 韩长赋 Ministry of Agriculture and Rural Affairs (MARA) minister notes closing the development gap between urban and rural areas is a relatively new mission for his ministry, making no mention of benefits to the ag industry. Also missing this year are calls for self-sufficiency, replaced with a simple commitment to ‘ensuring food production does not decline’. That is not to say the ag industry will not feel the impacts of this year’s rural policy agenda. Expansion of pilots allowing farmland to be converted to shares in a corporate interest suggest opportunities for private participation in agriculture will expand rapidly in 2019. And a long-delayed, thrice revised update of Rural Land Contract Law has just been approved by the National People’s Congress standing committee.

tags: ag industrialisation 农业产业化, collectively owned land 集体土地, food security strategy 粮食安全战略, property rights 产权, three rurals 三农, farmland 耕地, poverty alleviation 扶贫

in other developments…

workers inspect UHV converter station in Yinan, Shandong

energy, industry and environment

watching for

recharging power sector reform

State Grid is bracing for a new round of mixed-ownership reform, with a 26 December announcement that it will open ultra-high voltage direct current (UHV DC) to ‘social capital’, including insurance companies, large-scale industrial funds and investment platforms owned by local governments. This is the first time it has taken social capital investment into UHV DC lines, one of its core businesses. State Grid was criticised for eschewing competition after several attempts at mixed-ownership reform since 2014 in various business areas. Experts believe the announcement signals intent to revive power grid construction, which has slowed since 2017. Despite being viewed by the public as one of State Grid’s the most profitable sectors, experts predict low returns on investment, due in part to central efforts to control power transmission prices. Other areas seem more promising, and support for incremental power distribution pilots is a highlight. A key priority in power sector reform, implementation has been hampered by resistance and interference from grid companies.

State Grid’s move overlaps with a renewed push for power sector reform, especially in setting up incremental power distribution and a power spot market. Since 2016, the National Development and Reform Commission (NDRC) and NEA has approved three batches of pilot projects. Yet foot-dragging by grid companies and local governments led to closed-door talks on 10 October between NDRC, State Grid and six provincial governments. On 27 December, NDRC requested local governments submit applications for the fourth batch of pilots. Compared to previous pilots, NDRC tightened requirements on investment and scope, and added third-party evaluation. Meanwhile, NEA circulated an unreleased plan on 19 November urging eight pilots to begin simulated operation of a power spot market, a core component of a mature power market. Only Guangdong, West Inner Mongolia and Shanxi’s spot markets started trial operation by end 2018; other pilots were impeded by disputes including whether power generated outside the province should be allowed in the market, according to Economic Information Daily.

tags: electricity, SOE reform, central SOEs air , environmental protection, climate

in other developments…

PBoC to pursue further monetary easing


watching for

  • reserve ratio lowerings impact on the financial market and the real economy
  • expanded local government bond issuance quota
  • consumption stabilisation to counter the deflationary pressure

2019: focus on domestic market

China’s global expansion and economic leadership ambitions are feeling the pinch of geopolitical tension and domestic slowdown. The 21 December Central Economic Work Conference (CEWC) set bolstering the domestic market as a top 2019 priority, as did the Q4 Politburo meeting several days earlier. Other key initiatives, such as service sector promotion, high-tech and transportation infrastructure, and reform to improve market mechanisms, can all be understood in the context of improving domestic market structure.

As costs and risks of globalisation grow, China should partially embrace ‘splendid isolationism’ to strengthen the domestic economy and avoid rising global conflict, according to independent Wechat account EBG Public Strategy Macro Research. The 2008 financial crisis, it argues, continues to brew geopolitical and economic conflicts at both domestic and international levels; China’s rise must come at the cost of advanced economies. Jin Canrong 金灿荣 Renmin University professor nevertheless thinks China cannot choose at will to ‘bide its time’, given constraints of economic strength, international expectations, and domestic public opinion.

Monetary expansion in H2 2018 endured RMB exchange rate depreciation and global monetary policy normalisation pressures. 2019 will likely see further easing, as the CEWC press release conspicuously deleted ‘neutral’ from its stance on monetary policy, also skipping conventional mention of RMB exchange rate stability; domestic growth stimulation outweighs RMB external valuation. The financial industry generally expects further easing through reserve ratio cuts, an open market operation repo interest cut, relaxed macro-prudential requirements, and capital replenishment for commercial banks, despite Sun Guofeng 孙国峰 People’s Bank of China (PBoC) director downplaying the announcement.

Fiscal expansion will continue via tax cuts, infrastructure spending, and rising debt, as the CEWC greenlit ‘significantly’ higher local government bond issuance. The final version of personal income tax implementation measures, released 18 December, relaxed rules on property transfer and tax evasion compared with the previous draft. The scope for special deductibles was also expanded to benefit the middle and working classes.

tags: growth model, money supply, income tax, going global, RMB internationalisation

in other developments…


Wang Jiangping 王江平 | MIIT vice minister

Having lead a local state-owned phosphorite mining company for 16 years, Wang was appointed to direct the Guizhou Economic and Informatisation Commission in 2011. In 2015, he moved to Beijing to become vice director of State Administration for Industry and Commerce (SAIC), which merged into the State Administration for Market Regulation (SAMR) during the March 2018 government overhaul. In that overhaul, Wang moved to his current position at MIIT, where he advocates industrial upgrading and specialisation among manufacturing firms. The state should encourage firms to focus on a single sector and invest more in R&D to drive development, says Wang, calling to mobilise specialised firms for tech breakthroughs and synergy across industrial chains. Wang has repeatedly praised innovation at private, small and medium-size enterprises and supports the turn to services in manufacturing, noting growth in product customisation, supply-line management and outsourcing.

Si Wei 司伟 | China Agricultural University School of Economics and Management vice dean

Agricultural economist Si is regularly called upon by the state to lead independent research projects on the rural economy. Si spent his early career researching trade in key commodities, including grain, oilseeds and sugar. He contributed to (former) Ministry of Agriculture research projects on ag trade with Australia and Brazil, and helped analyse the implications of WTO accession for the nongken system. His recent survey work on rural property rights reform, coordinated by State Council, will likely inform upcoming land reform agendas. His findings suggest farm sizes of around seven hectares (100 mu) are most efficient under current domestic conditions.

Ma Li 马莉 | State Grid Energy Research Institute deputy general engineer

Expert in energy institutions and policies, Ma has often led research projects on power sector reform and markets commissioned by NDRC, State Grid and provincial governments. In her view, power sector reform should enable competition among a large number of buyers and sellers. Introducing more market measures, rather than letting the government set power plants’ operating hours, will make it more difficult to predict production and pose challenges setting carbon caps, says Ma. To move power sector reform forward, Ma suggests coordinating intra- and inter-provincial power market trading and incorporating renewable energy in the state’s broader commitment to decarbonisation.

Sun Guofeng 孙国峰 | PBoC monetary policy department director general

Awarded China’s highest economics award for his research on shadow banking, Sun now oversees monetary policymaking and execution. The shadow banking system, he argues, is not the root cause of financial crisis, bur rather a feature of it. He proposes to integrate shadow banking in macro-prudential assessment, improve theoretical understanding of money creation by the shadow banking system, and its influence on liquidity. The financial sector and real economy must be closely linked to prevent financial risk; we can measure support to the real economy using the aggregate leverage ratio, and the inverse through the capital adequacy ratio, says Sun. Therefore, financial risk should be addressed by macro-prudential policies tackling countercyclical adjustments and spatial contagion and micro-prudential regulation that emphasises capital and assets.

in case you missed it…

cp.signals—domestic policy movement
anti-corruption: success and stalemate
bumps in the road

cp.positions—audit of shifts across policy sectors
governance: Huawei dispute and more…
economy:interprovincial zones and more…—monthly roundup
november: summit season
october: coping with the trade war