science and innovation

watching for

  • strategic emerging industries catalogue
  • action plan to promote ultra-high definition displays
  • Shanghai Stock Exchange sci-tech innovation board launch date

transforming SMEs into small giants

Helping SMEs become highly specialised and innovative ‘small giants’ is a 2019 priority, said Miao Wei 苗圩 as his Ministry of Industry and IT launched a 60 bn financial guarantee fund for SMEs. Part of ongoing efforts to allay concerns over SOE growth at the expense of private business, the move follows a November 2018 3-year action plan for integrating large, medium and small enterprises. The state has since paid 150 bn in outstanding SME invoices, begun training 10,000 SME managers per year, and improved funding access by sharing risk and accepting IP as collateral, said Miao.

Firms also get support to adopt cloud computing, and the Xinchang model will soon be implemented across Zhejiang province. This district helps small manufacturers find outside partners to digitalise and link up to one of China’s 269 industrial internet platforms; MIIT’s ‘Guidelines for building and promoting industrial internet’ include plans to launch more in 2019. At the same time, the document calls for benchmarking, standards and a state-organised identifier system to ensure compatibility across platforms. This is typical of domestic industrial policy: decentralised state support fuels a multitude of start-ups, while the centre gradually raises quality standards to create internationally competitive giants both large and small.

National Development and Reform Commission’s (NDRC) ‘Implementation plan on strengthening the domestic market’ props up car sales and urges large, traditional automobile firms to compete with new energy and autonomous vehicle makers. MIIT also issued measures to combat overcapacity in the closely related power battery sector. The regulations require licensed manufacturers to have used at least 50 percent of their production capacity in the previous year, and sets R&D investment targets.

NDRC’s plan for the domestic market also seeks to boost digital consumption, promote smart home electronics and roll out internet infrastructure, all measures that benefit the IT sector. To develop world-leading virtual reality firms, the state should also support industrial clusters where hardware developers, digital content providers and others work in close proximity, argue China Academy of ICT, Huawei and BOE. Encourage SMEs to internationalise by launching more bilateral industrial parks, said Miao in his speech, highlighting a revamped mass entrepreneurship and innovation campaign that supports founders and makers. Skilled labour is key to the Xinchang model, says Chen Yuan 陈远 Xinchang Sci-Tech Bureau vice director, as labour shortages outpace growth in the robotics industry.

tags: Made in China 2025, mass entrepreneurship and innovation, parks and zones, internet+

in other developments…

  • Chinese citizens used almost two petabytes of mobile data during the week of Chinese New Year, a 130 percent increase over 2018, reports MIIT
  • Tencent and ByteDance continued an old legal battle into a row over data sharing, adding urgency to the Individual Data Protection Law, currently being drafted
  • as part of debates on the future of urban governance, commentators called for a central government document on smart cities

A 1970s painting, ‘Energetically develop pig farming’

agriculture

watching for

  • publication of the 2019 No. 1 document
  • industry reaction to new plans for stricter regulation of aquaculture
  • details from a draft ‘Soybean revitalisation implementation plan’ currently under development

financing rural revitalisation

People’s Bank of China (PBoC), Ministry of Finance (MOF) and three other central agencies released Guiding opinions on promoting rural revitalisation with financial services on the first working day of the Year of the Pig. First mooted in late January as a solution to the estimated 7 tn financing gap for rural development, it calls for financial institutions to immediately boost lending and improve services to the ag sector and in rural areas. This follows a series of related moves including relaxed reserve requirements and higher non-performing loan ratios for rural banks, signalling that rural lending is a central priority and financial institutions should look elsewhere to reduce their risk.

Despite strong political will to channel private capital into farming and rural development, practical problems including high costs, low returns and a dearth of credit history make banks reluctant to lend. A series of bankruptcies and shutdowns plagued leading ag enterprises in early 2019, likely linked to heavy debt resulting from African swine fever and the pig cycle. Analysts say the new guiding opinions has already lifted share values at large, publicly listed pig farming companies. The measures introduce support in terms of reserve requirements and non-performing loans, push qualified agricultural companies listing on exchanges to raise funds, and open a ‘green channel’ to speed up IPOs for companies in impoverished regions.

At the high-level Summit on Financial Services Supporting Rural Revitalisation held in January, Yu Xinrong 余欣荣 Ministry of Agriculture and Rural Affairs (MARA) vice minister called for assessment measures to evaluate financial institutions on the basis of their support for rural revitalisation. This may be the push needed to ensure rural revitalisation goals translate into action. Regardless, it will be a top policy focus in the upcoming 2019 No. 1 Document.

tags: ag insurance, commercial banks, ag risk, three rurals, private capital, inclusive finance, corporate debt, ag banking, central budget, local budget

in other developments…


Bank of China the first to issue perpetual bonds

finance

watching for

  • CSRC policy direction under the new chairman Yi Huiman 易会满
  • PBoC cutting interest rates
  • falling real estate sales in third- and fourth-tier cities

recapitalising financial markets

Promoting consumption and industrial upgrading will require financial institutions to extend more credit and funding to the real economy, which could affect solvency of the financial sector. To recapitalise, People’s Bank of China (PBoC) gave the go ahead to issue perpetual bonds for commercial banks, but market enthusiasm for the product is questionable given that such bonds do not include fixed maturities or collateral. PBoC launched a central bank bill swap (CBS) scheme on 24 Jan 2019. A recent 21st Century Business Herald calls this an attempt to turn perpetual bonds into more attractive liquid assets for financial investors. The CBS swap does not generate new currency and has no effect on overall liquidity, says Xu Yao 许尧 China Construction Bank analyst; however, the scheme may transfer risk to PBoC, which should take steps to prevent contagion.

China Banking and Insurance Regulatory Commission (CBIRC) is also encouraging insurance companies to make long-term investments in recapitalisation, announcing on 25 Jan that it would allow them to buy publicly traded capital bonds and perpetual bonds. Insurance asset management companies can directly register their equity investment plans with the Insurance Asset Management Association of China, removing a previous requirement for pre-registration review by CBIRC. This will stabilise the stock market and provide a profitable investment option for insurance funds, especially for asset-heavy insurers, says Yang Delong 杨德龙 First Seafront Fund chief economist. Introducing more long-term investors such as insurance, pension, and foreign funds to the stock market is the next step, adds Yang.

Financial opening is also continuing, in coordination with other efforts to stabilise financial markets. After granting a quota increase to qualified foreign institutional investors (QFII) from US$150 bn to US$300 bn, China Securities Regulatory Commission is calling for comment on merging the QFII and RMB QFII (RQFII) systems, relaxing access requirements, and expanding investment scope. Fang Dongming 房东明 UBS China securities director says the move will have a positive impact on the market and be warmly welcomed by international investors.

tags: commercial banking, insurance, bonds, equities, private capital

in other developments…


Unit 1 of Taishan nuclear power station, world’s first third-generation ‘Evolutionary Power Reactor’ (EPR), entered into operation in December 2018

energy, industry and environment

watching for

oil and gas reform gaining steam, restarting nuclear power approval

The state will step up support for natural gas and accelerate oil and gas reform in 2019. Upstream exploration and midstream pipeline operations will be targeted, stated a National Energy Administration official on 8 Feb 2019, boosting production, improving pipeline interconnectivity and building more pipeline and storage facilities. To encourage development of coalbed methane (CBM) Shanxi province took another step to reform CBM mining rights on 11 Feb 2019. Given difficulty increasing conventional production, CBM is an unconventional form of gas that the state is eager to develop. Shanxi will enforce a CBM mining rights exit mechanism first proposed in 2017, downsizing CBM mining blocks owned or withholding a company’s rights if it fails to make sufficient investment for long periods of time. Shanxi will also transfer mining rights through market-based approaches such as auctioning to allow wider participation in CBM exploration, rather than granting the rights to a limited number of central SOEs.

Meanwhile, Economic Information Daily confirmed on 25 Jan 2019 that the plan to set up a national oil and gas pipeline company has been approved by National Development and Reform Commission and is expected to be published in the first half of 2019. China National Petroleum Corporation, Sinopec and China National Offshore Oil Corporation will spin off their pipeline assets to form the new company. Government-backed investment funds and private capital will control a stake of ‘around 50 percent’. Industry observers expect that capital will be used to fund new pipeline projects. The new pipeline will also seek IPO approval.

The state has started approving new nuclear power projects after a hiatus of several years, with two reactors in Zhangzhou and another two in Taipingling. Construction will start after passing safety review. They will use the Hualong-1 reactor, China’s third-generation reactor that combines technologies from China National Nuclear Corporation and China General Nuclear Power Group. Although no new projects were approved in 2018, seven older nuclear power units came online, adding 8.84 gigawatts (GW) of capacity, exceeding NEA’s 2018 target to install five reactors and 6 GW of new capacity.

tags: nuclear, gas, coal, central SOEs

in other developments…


profiles

Mao Guanglie 毛光烈 | Zhejiang NPC Standing Committee Party group vice director

Spending his entire 40-year career in Zhejiang, Mao served as mayor of Yiwu, Jinhua and Ningbo and as director of provincial departments of geology and mineral resources, science and technology, and development and reform. When the Zhejiang Smart Manufacturing Expert Committee was set up in 2017, Mao was appointed chair. Digital platforms are key to the assembly industry and SME upgrading, says Mao, and they, rather than automation and robotics, are becoming the focus of Made in China 2025. Zhejiang is home to 500 industrial clusters with gross output over 500 million, but 99.7 percent of its 293,000 firms are micro, small or medium-sized. Industrial internet platforms often feel alien to these firms, which led Zhejiang to pilot a matchmaking program in the Xinchang bearings industry, a typical assembly industry consisting of a constellation of small workshops and suppliers. By August 2018, 102 firms had upgraded their production processes, reducing waste by 10 percent, cutting labour costs by 50 percent and increasing profits 15 percent, says Mao, who visits Xinchang eight or nine times a year. The arrival of plug-and-play modules will halve the cost of digitalisation, argues Mao. If the approach is right, SMEs will upgrade en masse.

Yin Jiuyong 殷久勇 | Agricultural Development Bank of China (ADBC) vice president

Vice president of ADBC since 2014, Yin leads the sole policy bank focused on financial services for agriculture and rural areas. Serving the real economy, facilitating supply-side reform, and providing financing for rural revitalisation are ADBC’s most fundamental goals, as Yin repeatedly emphasises. He is committed to optimising ADBC services with innovative products, institutions and modes of operation. In remarks at the 2019 Summit on Financial Services Supporting Rural Revitalisation, Yin argued huge demand for new financial channels will be driven by rural infrastructure construction and upgrading, efforts to improve rural living environments, and stricter ecological governance. As rural collective assets and industrial capital are brought to bear, he says, financial services will be urgently needed.

Yi Huiman 易会满 | China Securities Regulatory Commission (CSRC) chairman

Prior to his CSRC appointment, Yi was President and Party secretary of ICBC, where he worked for 34 years. With no college degree, Yi is an inspiration to many having climbed the ladder from clerk to head of the largest state-owned bank. At a 30 Oct 2018 press conference, Yi insisted that private firms’ financial difficulties were due not to banks blocking credit, but to obstacles in direct and off-balance sheet financing. New and informal channels, not banks, raised financing costs for private enterprises, said Yi. On 26 Jan 2018, Yi replaced former CSRC chairman Liu Shiyu 刘士余, who now directs the All China Federation of Supply and Market Cooperatives. Financial media see the shakeup as a symptom of Liu’s marginalisation in financial policy-making circles.

Yuan Liang 袁亮 | China Academy of Engineering academician

Yuan pioneered the concept of coal and coalbed methane co-extraction, and directed the Coal Mining Engineering Technology Research Institute and State Key Laboratory of Deep Coal Mining and Environmental Protection. CBM developers often lack incentive to extract more CBM, says Yuan, due to high production costs and technological challenges. He anticipates coalbed methane production will peak between the 14th and 15th 5-year plan periods. Yuan also suggests CBM developers surrender their mining rights if they fail to begin exploration and extraction activities within three years, and recommends Shanxi set up a specialised company to lead CBM development across the province.


in case you missed it…

cp.signals—domestic policy movement
push or pull? Wang Junzheng’s transfer
governance from below, not from Beijing

cp.positions—audit of shifts across policy sectors
governance: aging well and more…
economy: MIIT work conference and more…

cp.observer—monthly roundup
december: CEWC and more…
november: summit season