science and innovation

watching for

  • MoT to legalise ‘load-hailing’ for trucks
  • fifth meeting of Central Military Commission for Integrated Civil-Military Development
  • more autonomy for national econ-zones

state signals support for automobile sector

Ning Jizhe 宁吉喆 NDRC vice director (and Li Keqiang’s trusted economic advisor) suggests measures to prop up car sales, down 2.8 percent in 2018, reports China Association of Automobile Manufacturers (CAAM). Passenger car sales make up a quarter of household spending; the slump, deepening in Q4, drags down overall consumption numbers. Ning also mentions incentives for farmers to buy vehicles. A scheme to scrap small rural and farming vehicles in 2009-10 had limited impact, notes 21st Century Business Herald, arguing for a more comprehensive policy. The state should take long-term measures like halving the ten percent purchase tax, argues Shi Jianhua 师建华 CAAM vice secretary-general.

NEVs, which are exempt from purchase tax, are deemed the long-term growth market for the auto industry. Sales grew 61.7 percent by volume in 2018. NEVs make up three percent of car sales by value according to CITIC Securities, and CAAM predicts 2019 sales will grow from 1.2 to 1.6 million. Policy support will be decisive: the entire industry chain generated 59.7 bn in profits in 2017, according to CITIC Securities, less than the 66.3 bn of central and local subsidies it received. In 2019, the state will continue to gradually reduce NEV subsidies, Miao Wei 苗圩 Ministry of Industry and Information Technology minister told the annual China EV100 Forum.

Nevertheless, growing overcapacity shows investors are betting on state support. NEV makers attracted 450 bn in 2018, planning new capacity to build a staggering 11 million vehicles. Indirect state support includes license plate restrictions in major cities as well as strict emission standards for passenger cars coming into effect in 2020. Anticipation of these standards already limits traditional car sales in tier-3 and smaller cities, says Xu Haidong 许海东 CAAM, although tier-1 cities delayed plans to implement the standards before national roll-out. Eventually the standards will help NEVs reach price parity with traditional internal combustion vehicles by 2025, argues Chen Qingtai 陈清泰 EV100 president. By then, power battery prices will have fallen to US$100 per kWh, says Ouyang Minggao 欧阳明高 Chinese Academy of Sciences academician. Current technologies are running up against limits of range, battery cost and safety, disagrees Ren Wanfu 任万付 industry analyst. The state should issue a mid-to-long term strategy for energy vehicles that includes a trajectory for phasing out traditional internal combustion vehicles by 2030, said Wang Chuanfu 王传福 BYD Chairman at the forum.

tags: new energy vehicles 新能源汽车, standards and conformity assessment 标准

in other developments…

  • in 2019, Ministry of Science and Technology plans to draft its mid to long term sci-tech development plan, give researchers full ownership of their inventions, and revise the Sci-Tech Promotion Law and ‘Management regulations for foreigners working in China’
  • State Council issued a measure to promote innovation in eight city clusters, including by setting up regional science and technology boards
  • CAC issued management regulations requiring blockchain information service providers to register within ten working days of service launch and to know the ID or phone numbers of their users

‘smart’ tractor seeding cotton, Xinjiang


watching for

  • pork price and African swine fever management during spring festival
  • regulations on private investment on rural land
  • grain reserve purchasing and destocking plans for 2019

next steps for ag mechanisation

Policymakers hope revising rules for agricultural equipment testing and evaluation will stimulate companies to develop innovative new ag machinery. A spokesperson for Ministry of Agriculture and Rural Affairs (MARA) says the revised Measures reduce burdens on manufacturers by removing redundant requirements, mandating a simplified electronic process and stipulating that provincial evaluation certificates are valid nationwide. The testing and evaluation process is a critical step in qualifying for central and provincial purchase subsidies.

The move is part of a new round of policy support to the sector, kicked off by State Council’s 30 Dec 2018 ‘Guiding opinions on promoting agricultural mechanisation’. Though largely a reiteration of existing priorities, the document links mechanisation with crop breeding (selecting varieties appropriate for mechanised cultivation) and land reform agendas (ensuring farm size and structure is suitable for mechanised operation). It does not explicitly mention ‘Made in China 2025’ but does promise better protection of equipment IPR. Luo Xiwen 罗锡文 China Academy of Engineering academician points out that technical breakthroughs—both on basic issues like transmission systems and high-tech categories like automation and sensors—are critical to competitiveness in the sector.

China’s ag machinery sector has been the world’s largest since 2012, but the industry is plagued by overcapacity at the low end; it struggles to make technical breakthroughs on key components that would help it compete with leading EU and US companies. Domestic demand will likely grow, driven partially by state promotion of grain mechanisation along with efforts to expand mechanisation of non-staple crops and in hilly regions. In December, Li Keqiang 李克强 premier said too little was being invested in mechanisation for mountainous areas, disadvantaging the poorest farmers. In the medium term, however, policymakers and companies alike expect exports to drive growth, particularly demand in BRI countries for smaller and more affordable Chinese ag machinery.

tags: ag machinery 农业机械, ag industrialisation 农业产业化, ag R&D 农业研发, ag subsidy 农业补贴, made in China 2025 中国制造2025, high-end equipment 高端装备, food security strategy 粮食安全战略, three rurals 三农, farmland 耕地, science and tecnology 科学技术

in other developments…

  • Anhui province announced plans to pilot the first ‘reserve chief’ system, clarifying responsibilities and accountability within local departments for grain reserve management
  • Han Jun 韩俊: delivering on rural revitalisation goals will require at least 7 tn of investment over the next five years, necessitating reprioritisation of fiscal budgets and other financial flows toward the rural sector
  • COFCO president Yu Xubo 于旭波 is to become board chair at Mengniu Dairy, facilitating better financial integration within COFCO group, which was noted as underperforming and insufficiently committed to deepening supply-side reform during August 2018 inspections of central SOEs

housing price rise aggravates the bubble, a drop rankles property owners


watching for

  • public budget performance audits
  • more commercial loans to small business
  • full relaxation of real estate market control

wise fiscal spending under the downward cycle

At the State Council plenary meeting on 14 Jan 2019, Li Keqiang admitted the economy is under mounting downward pressure, and the government faces hard work. Compared to Politburo meetings in October and December, Li spoke with gravity and emphasised that the centre should lead by cutting back unnecessary spending and allowing more money into the economy.

State Council Information Office brought three top economic officials together to explain 2019 priorities at its 15 Jan 2019 press conference, including Xu Hongcai 许宏才 assistant to the finance minister, Zhu Hexin 朱鹤新 People’s Bank of China (PBoC) vice governor, and Lian Weiliang 连维良 National Development and Research Commission (NDRC) vice chairman. Ministry of Finance is working on expanding small business tax rebates, planning VAT reform, lowering social insurance fees, and tightening monitoring of local special bonds. While infrastructure expansion paves the way for industrial upgrading, Lian said NDRC will focus on a more business-friendly environment by cutting red tape and broadening market access.

Pumping money into the economy is raising concern over local government debt: under previous stimulus local liabilities ballooned. Better targeted lending, says Xu Zhong 徐忠 PBoC research bureau director, will improve total-factor productivity and return on capital. Both are key to balancing short-term demand against medium-to-long-term structural reform; and as asset accumulation comes with mounting debt, making local assets more profitable will help reduce leverage. A Peking University study shows that infrastructural real estate investment trusts (REITs) are likely to help reduce local debt ratios, as private capital takes up opportunities.

While 2019 macroeconomic strategies have mostly been sketched out, Beijing’s attitude towards real estate is notably ambivalent. Wang Yuzhen 王玉珍 China Finance Writers’ Association director considers it the biggest challenge in 2019. Pumping up real estate will boost a range of industries, as in previous rounds, but speculators and asset bubbles are a sword of Damocles. While expansion is bound to trigger a rise in housing prices, says Zhang Bin 张斌 China Finance 40 Forum senior researcher, spikes should be smoothed by structural adjustments, not by limiting growth stabilisation strategies.

tags: central budget, local budget, supply-side reform, local government debt, property markets

in other developments…

Guinea has become one of China’s biggest bauxite suppliers

energy, industry and environment

watching for

  • more details on national oil and gas companies
  • second round of central environmental inspection
  • Resource Tax Law

service-oriented and market-centred environmental regulations

In an 8 Jan 2019 op-ed highlighting MEE’s 2019 priorities, Li Ganjie 李干杰 Minister of Ecology and Environment strenuously opposed ‘one-size-fits-all’ environment policies, preferring to help firms plan pollution treatment. Meanwhile, National Development and Reform Commission (NDRC) and eight other agencies issued a joint action plan on 11 Jan 2019, urging regulators to set up a ‘market-centred and diversified ecological compensation mechanism’ by 2020. The plan calls for improving a set of fiscal instruments ranging from compensation for resource exploitation to green finance. Tough criteria to assess ecosystem services are needed to prevent misuse of the scheme by giving polluters the ‘right’ to inflict further damages. The policy follows State Council’s 2016 plan to create a compensation scheme covering critical ecosystems such as forests, grasslands and wetlands. The 2016 plan was stymied by lack of enforcement mechanisms, low private sector buy-in and lack of ecosystem services.

NDRC and National Energy Authority started rolling out subsidy-free solar and wind pilot projects whose on-grid prices are either equal to or less than coal-fired power, an early step towards making renewables competitive with coal power by 2020. Those pilot projects are not subject to annual provincial project construction quota. However, regions that receive a red warning under a three-tier warning mechanism are prohibited from new subsidy-free projects. Nominally ‘subsidy-free’ pilots are still eligible for local subsidies, and central subsidy for subsidised projects will continue until 2020.

On 2 Jan 2019, Ministry of Industry and Information Technology (MIIT) published new regulations on alumina producers. Though the centre has made efforts to address overcapacity in the downstream aluminium industry, this is Beijing’s first action on alumina in recent years. After seeing capacity grow in H1 2018, as aluminium grew more profitable, the agency warned producers to invest cautiously and asked local governments to ensure all new projects obtain the necessary permits and comply with land and environmental protection rules. MIIT often warns against overcapacity, usually with limited effect–central government released policies addressing overcapacity in steel as early as 2009, but only took real action in 2016.

tags: renewables, environmental protection, ecological civilisation, traditional industry overcapacity

in other developments…

  • China Iron and Steel Association Yu Yong 于勇 president revealed on 14 Jan 2019 that China has reached the target to eliminate 150 million tonnes of excessive steel capacity between 2016 to 2020, which has turned the market situation around.
  • MEE announces ‘2018 catalogue for advancing air pollution technology’ on 7 Jan 2019, listing 35 technologies for treating flue gas, industrial volatile organic compounds (VOCs) and diesel engine exhaust
  • NDRC refuted a rumour that a drop in natural gas supply from Turkmenistan on 8 Jan 2019 might drive up LNG prices, stating that supply from Turkmenistan had returned to planned levels and gas storage is sufficient to ensure stable supply


Ren Xingzhou 任兴洲 | State Council Development Research Centre (DRC) Market Economy Research Institute researcher

The first negative figures for car sales in thirty years is the most significant change in the economy 2018, says Ren, who joined DRC in 1985 with a BA in economics from Jilin University. The decline, accelerating in H2, drags 2018 consumption numbers down, as it represents a large portion of household spending. The state, she says, could consider issuing tailored policies not only in the agricultural vehicle market, but also for low-emission vehicles; blanket solutions, e.g. reducing the purchase tax, are another option. Without state intervention sales will continue to decline in H1 2019, to stabilise in H2. More generally, consumption will remain under pressure due to the China-US trade war and declining domestic consumer confidence. Policies to increase social security and cut taxes may not take effect fast enough, as unemployment is rising, says Ren, who was vice-director and then director of the DRC Market Economy Research Institute, stepping down to become a researcher at the institute in 2016. Ren, has written papers on price reform, commodity markets, housing security and China-Japan trade.

Luo Xiwen 罗锡文 | China Academy of Engineering academician

An engineer by trade, Luo is a top policy advisor on state ag machinery R&D priorities. His work identifying tech bottlenecks for domestic ag machinery will determine future scitech funding priorities, substantially impacting policy direction and industry priorities. Luo has built a career developing key technologies for rice mechanisation, spanning traditional equipment categories and advanced agtech—including in-field data collection, machine vision and rice seeders appropriate for use in paddy fields. His team received the 2017 National Technological Innovation Award for its work on precision rice seeding tech that increased efficiency while substantially reducing costs. Crop protection technology is another focus for Luo—he has proposed opening airspace 500 metres above all farmland to facilitate UAV crop protection and data collection. He is also a staunch advocate for including spraying drones in ag machinery purchasing subsidy schemes.

Zhu Hexin 朱鹤新 | PBoC vice governor

Zhu was appointed PBoC vice governor in July 2018 after serving as vice governor of Sichuan province, following a 22-year career with the Bank of Communications and Bank of China. Zhu’s local level financial experience adds breadth to the expertise of the PBoC leadership. At PBoC, Zhu has been responsible for financial risk control, monetary policy transmission, and private company access to finance. At the 15 Jan 2019 State Council Information Office press conference, Zhu addressed market concerns over possible interest rate cuts, explaining that the central bank is first using quantitative tools and will look at lowering interest rates later. Lowering reserve ratios can, he argues, support economic development without destabilising the RMB.

Pan Biling 潘碧灵 | Hunan Provincial Environmental Protection Department vice director

Pan considers current ecological compensation mechanisms unbalanced and inadequate. His past Two Sessions proposals span soil, heavy metal and air pollution, as well as poverty alleviation. Pan argues for expanding the transfer payment scheme for national key ecological functional zones initiated in 2008 to include more counties and increase supply of ecosystem services (such as planting trees to mitigate climate change effects). Pan also highlights that agency coordination is critical to a functional ecological compensation scheme, calling for a focus on improving inter-provincial eco-compensation.

in case you missed it…

cp.signals—domestic policy movement
ag insurance covers new ground
anti-corruption: success and stalemate

cp.positions—audit of shifts across policy sectors
governance: civil servant oversight and more…
economy: MIIT work conference and more…—monthly roundup
december: CEWC and more…
november: summit season