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The ‘Two Sessions’, China’s annual legislative and consultative meetings, were held after a two-month delay, a sign that the epidemic, but not its impact, was easing. As well as the economy, deliberations centred on poverty alleviation, the draft civil code, and national security for Hong Kong.

Public health dominated delegate proposals at the Sessions; debate on building post-COVID-19 healthcare infrastructure is set to continue. The epidemic’s social aftermath is massive: helping people, not least college grads and migrant workers, secure jobs absorbs official energy. Already central to poverty alleviation, job creation is critical, as more people become vulnerable under COVID-19.

No GDP growth target was set this year ostensibly to focus on ‘six protections’, above all to create jobs: but is it to become the new normal? Despite the deficit escalating, on some calculations, to some 21 percent of GDP, stimulus measures were milder than expected, as Beijing holds the line on flooding the economy with cash. Fiscal policy will carry the load: official fiscal deficit, local special purpose bonds and national special bonds were expanded. Several long-term policy texts appeared pre-Sessions, notably one on ‘improving the socialist market economy’, discussing private sector, real estate policy, SOEs and more, buoying hopes COVID-19 will drive long-term economic reforms.

The domestic market is intended to be the prime economic driver, powered by local innovation. Chairman Xi sketched a vision of ‘double circulation’ of domestic and international value chains, code for a shift towards self-sustaining regional/local chains. Meanwhile new market-driven reforms in state research, technology and data, aiming to free up domestic circulation, are troubled by legacy and security barriers. Time is running out: Beijing is preparing to retaliate against Washington’s redoubled pressure on Chinese tech firms, above all Huawei.

‘Stabilisation’, not least of supply/industry chains, topped the trade agenda. Premier Li promotes a northeast Asian circulation system, echoing Xi’s term above.

But if it is pivoting to Asia, China is not neglecting Europe. Bilateral Investment Treaty talks with Europe will wrap up this year, Foreign Minister Wang Yi 王毅 told a Two Sessions presser, maintaining the line on Beijing’s ‘open for business’ messaging.

Grain and pork production were promised protection at the Two Sessions. Aligned with 2020 grain security priorities, this year’s GWR (government work report) pledges financial incentives for producers.

April saw a new minister and new Party secretary appointed to the Ministry of Environment and Ecology. Their blend of professional and political credibility betokened central backing for the ministry. In principle foreswearing a growth target wards off the eco-disasters associated with target-driven, energy-intensive projects. No green goals were set; cuts to energy intensity and emissions will continue. Energy security was underlined, with reserve capacity highlighted for the first time. The new pipeline corporation spun off from major energy SOEs, China Oil and Gas Piping Network Corporation, broke ground on its first megaproject on 16 May, following the transfer of the first set of pipeline assets.

featured analysis

a Hainan Airline passenger plane converted for cargo
a Hainan Airline passenger plane converted for cargo

COVID-19 and global trade

COVID-19 is rewriting China’s trade narrative. Beijing expects a ‘longish time’—code for up to ten years—to digest the international ‘new normal’, no longer just a domestic headache. Analysts urge rewarming ties within Asia, where trade interdependence is greater. full post open access →

may policy movers

policy professionals in and out of the establishment

Huang Yiping 黄益平 | Peking University professor

As major economies resort to monetary easing, Huang worries that inflation, far from skyrocketing, will never in fact come. Proliferating under easing, he argues, zombie enterprises hide fundamental discrepancies. Employment and growth stabilise, but the zombies collapse. Traditional monetary easing achieves little. Resorting to unconventional monetary policy (zero interest rates), entails setting innovative (non-monetary) criteria of success. Huang made his name in leading centres in China, Australia and the US.

Lyu Jianzhong 吕建中 | China National Petroleum Corporation Economics and Technology Research Institute deputy director

A heavy cut to domestic oil production is off the table, says Lyu, despite record low prices. Local oil fields are aging, with output unlikely to recover once reduced. Over-exposure to the global market makes it crucial to stabilise domestic production. Low prices create a chance for reform, argues Lyu, as resistance and entry barriers tend to drop when supply is abundant. The renewable sector will keep growing rapidly regardless of low oil prices.

Wang Songmiao 王松苗 | Supreme People's Procuratorate General Office Director

Anhui-born and former chief editor of Procuratorial Daily, Wang has been the SPP’s official voice on recent judicial reforms and legal initiatives. He argues the judiciary should ‘build a firewall’ for honest and clean justice, not least resisting Party intervention in pending cases. Instead of simply ignoring it, Wang insists, judges and legal staff alike should report it to disciplinary authorities. ‘Doing things by the law is the top responsibility’ for everyone in the legal sphere, notes Wang: they must, ‘shut backdoors of influence, open social supervision, and urge citizens to examine cases and seek information.’

policy ticker highlights

gems from our feed of policy releases and domestic debate

global impact

political wisdom needed to handle US pressure

Cfisnet | 22 May

context: On 15 May, the US unveiled new rules requiring licenses for sales to Huawei of semiconductors made abroad with US technology. As a result, Huawei warns its survival is at stake.

Faced with the Trump administration’s aggressive stance over COVID-19 and Huawei, argues Liu Yadong 刘亚东 Science and Technology Daily editor-in-chief, Beijing must stick to ‘Taoguang Yanghui’ (韬光养晦, or ‘hiding and biding’).

As the Chinese public gets increasingly agitated amid belligerent calls from ‘wolf warriors’, Liu urges Chinese people to develop a rational understanding of the world and China itself

  • as late ambassador Wu Jianmin noted, China cannot afford a war with US
    • such a war is unwinnable
    • would intensify domestic tensions
  • China’s growth: large scale, but low quality
    • apart from 5G, we can compete with US in few other fields
    • chips and aircraft engines: no match
    • much-touted Liaoning and Shandong aircraft carriers are primitive
  • China must stick to policy of ‘Taoguang Yanghui’

On tech de-coupling

  • in the long term, world’s No. 1 and No. 2 economies cannot be completely separated
  • even if de-coupling does happen, it will be confined to specific fields
  • any tech, however sensitive, will eventually benefit all mankind

The complicated situation must be handled with a high level of political wisdom

  • we should be aware: pro-decoupling US politicians are under pressure, too
    • opposition within the US
    • US will pay a heavy economic price
  • we can take appropriate countermeasures, but
    • should avoid emotional reactions
    • cannot whip up populism
  • we must maintain strategic focus
    • deepen reform, open up wider
    • avoid conflict, reduce friction
    • as the weaker side, we should be mentally prepared for more losses


People’s Daily extols new civil code

People’s Daily | 24 May

context: The new civil code seemed to be stuck in neutral, with opinion divided by rancorous debate. In recent weeks, compromises were reached and major progress secured. The author’s contribution is a further sign of consensus at the highest levels.

In a People’s Daily essay, Supreme People’s Court judicial committee deputy director He Xiaorong 贺小荣 states that ‘great times give birth to great laws’. The current draft of the civil code being debated at the NPC (National People’s Congress)

  • carries the quintessence of Chinese civilisation
  • condenses the practical experience of reform and opening up
  • provides an inexhaustible source of power for all people to start their own businesses
  • ensures a strong institutional guarantee for the Chinese nation’s great rejuvenation
  • is a new monument to the construction of the rule of law in socialism with Chinese characteristics

The draft civil code clearly reflects the characteristics of the new era, especially personal rights and the legal protection of the right to privacy. Infringing on the tranquility of private life of natural persons, their private space, activities, and information is to be prohibited, reflecting the need to codify individual rights in the internet era.

The draft civil code also inherits the spirit and temperament of Chinese culture. For example, the draft Marriage and Family Code stipulates that the family should establish a good family style, promote family virtues and the construction of the values of civilised families. In an effort to prescribe harmony in spousal relations, financial matters (such as debt responsibility in divorce) are a centerpiece of this legislation.

Equal protection of property rights will mobilise all members of society to create wealth, He contends. The draft civil code establishes the State’s actual rights, and further clarifies equal protection, thereby promoting a social environment advocating innovation, and, by cultivating the spirit of contracts, creates a stable, fair and orderly business environment.

The draft also embodies principles of social governance, including protecting the environment and saving resources, and legally guards human dignity.


Two Sessions: more stimulus packages than last year

Jiemian (1), Jiemian (2), China Finance 40 Forum | 22 May

context: The market has generally expected more stimulus announcements confirmed by the Two Sessions, given the COVID-19 shock. Perverse political incentives—the hide-and-seek games between central and local governments—are a key obstacle in the top-down implementation of stimulus. Strong fiscal discipline from Beijing leads to local inaction, which then motivates the centre to open up ‘back doors’. But acquiescence in grey-area operations may encourage frivolous public spending at the local level.

The 2020 government work report fleshes out a series of stimulus measures

  • raising fiscal deficit to 3.6 percent, 0.8 percent higher than last year, bumps up the total deficit from 1 tn to 3.76 tn; while experts debated the 3 percent threshold several months ago, the announcement is 0.6 percent higher than experts’ expectations
  • 1 tn special national bond for pandemic relief and 3.75 tn special-purpose local government bonds are announced, the latter being a 1.6 tn y-o-y increase
  • 2.5 tn financial relief for corporations

Addressing concerns about fiscal health, Fan Lei 樊磊 Sealand Securities says exceeding the so-called 3 percent redline is a necessity in the current economic situation, but actual expansion may not be that large. COVID-19 brought huge uncertainties, says Yu Xiancai 余显财 Fudan University, which warrant more deficit. The 3.6 percent increase is appropriate and relatively prudent, adds Yu.

Among the ‘three arrows’ of fiscal policy—deficit, special-purpose local bonds, and special national bonds—the 1 tn announced special national bonds for pandemic relief is below market expectations. The semi-official think tank China Finance 40 forum argued for 1-1.5 tn. Most economists in securities companies projected 2 tn. Liu Shangxi 刘尚希 Chinese Academy of Fiscal Sciences suggested 5 tn. Fan argues that 1 tn is enough because special national bonds should be used for projects with returns, which are not that easy to find.

The 2.5 tn announced in tax and fee cuts exceeds market expectation. The market thought that there was little room for further tax cuts considering the 2.3 tn cut last year and fiscal strains inflicted by COVID-19. SMEs are the focus of tax cuts this year, according to Jiemian.

Notably, the 2020 government work report does not specify growth targets, due to uncertainties. However, Jiemian calculates the implicit growth rate bottom line using fiscal deficits. Its estimated nominal GDP growth is 5.41 percent and real GDP is 2.1 percent. Zhang Tao 张涛 China Construction Bank estimates the implicit growth target to be around 2-4 percent.


stabilisation tops 2020 government work report for ag

Farmers’ Daily, State Council | 22 May

context: Top leaders vowed to protect staples and pork consumption at the Two Sessions. Following the 2020 grain security priorities, this year’s government work report stressed stabilising total crop acreage and grain yields, with financial incentives for producing counties and producers. Pig production is listed as another key area, and the hope is to restore production levels reached before last year’s African swine fever outbreak.

In the 2020 government work report, Premier Li Keqiang 李克强 announced the ag sector will

Concrete measures were taken to secure spring planting, which is expected to total 910 million mu, with early rice restoring to 71 million mu, announced Han Changfu 韩长赋 Minister of Agriculture and Rural Affairs. The nation’s grain output in 2020 will exceed 650 million tonnes, as in the past five years. China already has 100 percent self-sufficiency in rice and wheat, says Han.

Pork prices continued to edge down for 13 consecutive weeks, 23 percent or 12 per kg down from the peak, thanks to the recovering supply which is expected to approach normal levels in 2020, according to Han. Nevertheless, revitalising pig production is an ongoing process, he said, adding that authorities have released supportive policies to encourage pig production while stepping up African swine fever prevention and control measures. R&D on a vaccine has also been accelerated.

Accounting for 52.3 percent and 47.7 percent of pig production, respectively, large-scale companies and medium- and small-scale farmers will receive equal attention from the government. Leading companies will be the engines boosting the production restoration, said Han.


investing in infrastructure to shore up public health weaknesses

National Health Commission | 20 May

context: Similar to government reactions after SARS in 2003, funding will be pumped into hardware development. But many follow-up measures will be needed if the new system can be kept on high alert and respond swiftly to another epidemic.

National Development and Reform Commission, National Health Commission and State Administration of TCM (Traditional Chinese Medicine) jointly released ‘Plan to develop public health prevention, control and treatment abilities’ on 20 May 2020, specifying

  • objectives
    • focusing on weaknesses exposed by COVID-19, establishing solid protection on citizen health
  • tasks
    • developing a modern system of control and prevention
      • every province should have at least one P3 lab, every city should have at least one P2 lab
      • enhancing county-level CDC to discover and deal with outbreaks
      • enhancing lab testing, upgrading lab equipment and biosecurity
      • enhancing emergency response abilities
    • increasing treatment abilities of county-level hospitals
      • focusing on improving the infrastructure of one county-level hospital in each county
      • improving infrastructure, upgrading equipment and facilities
      • enhancing infectious disease departments and developing independent wards for infectious diseases
      • developing wards that can be transformed into ICUs when needed
      • ensuring sufficient beds based on the local population
    • improving urban infectious disease treatment network
      • establishing such networks based on local needs
      • expanding capacity to treat more infectious disease patients
      • enhancing development of ICUs
      • improving infectious disease lab testing
      • enhancing development of TCM departments to provide integrated TCM-western medicine treatments
      • selecting one to two hospitals in each city for expansion to ensure sufficient beds for local population
    • upgrading treatment bases for serious outbreaks
      • developing one to three treatment bases in each province based on existing hospitals
      • enhancing ICU development, with 10-15 percent of beds being in ICU
      • developing wards that can be transformed into ICUs when needed
      • improving facilities in infection and respiration departments
      • increasing public health testing, research and emergency medical assistance abilities
      • increasing storage of emergency medical supplies
      • helping TCM hospitals build P2 or P3 labs
      • provinces should select a few hospitals for development to meet demands of level one emergency responses, and establishing a high quality technical team to provide medical assistance during serious outbreaks
    • redeveloping public facilities to meet demands during an epidemic
  • funding
    • central and local fiscal budget, as well as local special purpose bonds will be used to fund development
  • supportive measures
  • list of medical supplies treatment bases should have in storage

energy and environment

environmental ministry gets new minister

The Beijing News, Weixin | 29 April

context: This the first time since the environmental ministry was created in 2008 that it has been headed by two leaders, with Huang serving as minister and Sun Jinlong 孙金龙 as Party secretary.

Huang Runqiu 黄润秋 was promoted to MEE (Ministry of Ecology and Environment) minister on 29 Apr 2020, becoming the third non-Party member acceding to a ministerial post. A renowned geologist and Jiusan Society Central Committee vice chairman, Huang has twice received the nation’s top science accolade, the National Science and Technology Progress Award. He led an expert team conducting geological disaster emergency surveying during the 2008 Wenchuan Earthquake, and was appointed vice minister of the Environmental Protection Ministry in 2016.

Environmental violations are still rampant, pointed out Huang at the 2019 Two Sessions. Penalties should be tightened and increased, says Huang. Environmental protection should ultimately achieve the unification of pollution control and ecological conservation, stresses Huang.

science and innovation

Xi calls for developing dual domestic/international market circulation

Yicai, Weixin (1), Weixin (2) | 14 May

context: Industrial/supply chain stability, one of Beijing’s much touted ‘six protections’, is now sought through a double circulatory system. This new concept urges upgrading and completing the internal market or ‘circuit’, so that any negative impacts of international trade (the external circuit) would be more manageable. As such, it seeks to reconcile calls for self-reliance and decoupling with the multilateralism and globalisation from which China is also still benefiting.

Ensure industrial chain stability and competitiveness with a ‘double circulatory system of domestic and international [value chains]’, advises Politburo Standard Committee on 14 May. The double circulatory system should leverage China’s enormous market. New programs promoting improvement in the domestic industrial foundation and value chain will soon be rolled out.

The concept signals Beijing’s commitment to globalisation despite an increasingly hostile external environment, says Wei Jianguo 魏建国 China Going Global Think Tank director

  • it is presented as a solution to the supply chain volatility exposed by the pandemic
  • both circulatory systems are vital to China’s supply-side reform, which helps cultivate an ‘open, stable, and safe’ chain
  • domestic and international markets should be
    • mutually complementary in normal times
    • self-dependent when challenges emerge in the other system
  • the double circulatory system promotes upgrading and modernising domestic industry

The concept reorients China’s supply/demand advantages, argues Liu Zhe 刘哲 Wanb Institute

  • China’s market remains attractive to foreign investors
  • indigenous innovation promotes domestic value chain development
  • market-driven reform measures promote the upgrading of domestic supply and demand

Policy announcements made in April 2020, such as production factor marketisation help unclog the domestic circulatory system, notes Huatai Futures, and unleash its potential.

Domestic industry is slowly moving up the value chain, says CICC (China International Capital Corp). Chinese industry remains competitive in light of geopolitics-related industry relocation risks, argues the report given China’s

  • unusually large market: about 70 percent of industrial output goes to the domestic market
  • strong logistics and internet infrastructure: highly efficient industrial activities
  • full industry chain: highly efficient value chain that facilitates innovation
  • talent dividend: a rising number of university graduates

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