roundup from our portfolios

COVID-19’s resurgence in Beijing, sourced to a major produce market, triggered nationwide food safety checks, slowing produce delivery. Food imports were hit with tougher quarantine and random tests. Halting imports from outbreak-stricken countries looks set to impact the nation’s meat supply.

US reactions to the ‘national security law Hong Kong version’ added to a poor outlook for Sino-US relations. In the shadows of Xi’s assertive ‘wolf warrior’ diplomacy, Deng-era ‘hiding and biding’ regained favour with some in the policy elite. Beijing, advised economists, should avoid provoking the US on financial issues and ‘take a low-key stance’ on RMB internationalisation.

‘This is not the last supper’, cautioned Guo Shuqing 郭树清 China Banking and Insurance Regulatory Commission chairman, as Beijing hunkers down for a troubled H2. Addressing the Lujiazui Forum (Shanghai 18-19 June), Guo was one of a lineup of finance regulators sketching out post-COVID priorities that will keep policy tools and cash in reserve. Ministry of Finance offered special sovereign bonds, proceeds of which will bypass provinces to fund city and grassroots infrastructure. SOE reform continued with SASAC rulings on SOE wage reform, staff tenure and contract management.

In the wake of COVID-19’s reemergence, authorities are doubling down on testing, disinfecting and vaccine research. To deal with rising joblessness, above all among university graduates and migrant workers, a blend of measures includes skills training, grassroot public service jobs, research assistantships and boosting unemployment insurance. With amendment of the Minor Protection and Youth Delinquency Prevention Laws coming up, debate is heating up on how to protect children and address youth crime.

A long-awaited masterplan for Hainan’s free trade port was finally aired, promising unheard-of trade and investment liberalisation—and a hard border between the island and the mainland. While billed as ‘high ground’ for the envisaged new open economy, institutional and ideological red lines cannot be crossed. Hainan, experts agree, is unlikely to replace Hong Kong as the transit point for mainland-bound FDI.

Efforts to clean up the environment continue apace with coal de-capacity back on the agenda. Coal-fired power will be capped at 1.1 TW, and removal of outdated capacity will continue. Consolidating assets is also underway; that in the northwest provinces will be re-distributed among five central power SOEs. ‘Clean coal’ projects will no longer qualify for PBOC’s green bond financing. 2020 provincial quotas for renewable consumption were clarified, boosting transmission of renewable energy across provinces.

Scitech workers should have confidence, urges Xi, in the nation’s capacity for innovation. Researchers and firms are in fact threatened by decoupling, two engineering schools in Harbin being the latest casualties. Progress in quantum communication, space programs and the Beidou satellite navigation system shows the strength of the indigenous innovation doctrine. Heeding Xi’s call, local authorities nationwide are busy rolling out new state research and industrial upgrades.

Beyond the new outbreak, leaders confronted flooding, slipping poverty alleviation targets, and setbacks in claimed ethnic unity. Inspecting the Ningxia Hui (muslim) Autonomous Region, Chairman Xi touched this whole suite of issues. Contention over how much discretion grassroots officials need has been growing. Whether cadres should rely on technology grew too. One Sichuan township advised avoiding social media for contact with residents.


featured analysis

cybersecurity in action: US-restricted firm Qihoo 360
cybersecurity in action: US-restricted firm Qihoo 360

the cybersecurity / innovation tightrope

A landmark Cybersecurity Law came into effect three years ago, on 1 June 2017. A daunting task is now faced: settling the fine print of privacy provisions, cross-border data transfer and CII (critical information infrastructure). full post open access →


june policy movers

policy professionals in and out of the establishment

Cai Jiming 蔡继明 | Tsinghua University Centre for Political Economy Research director

An NPC deputy, Cai has for decades proposed radical land reforms. Granting land use rights to farmers and allowing market allocation of land, he argues, are needed for poverty alleviation and urbanisation. Granted the same marketability as urban land, land now merely contracted to farmers could yield them income; providing more land for urban development, it would help cut city housing prices.

Fang Yan 方燕 | Shaanxi Lawyers Association vice president

A National People’s Congress delegate focusing on women’s and children’s rights, Fang has been vocal on the Minor Protection and Juvenile Delinquency Laws. Child sexual abuse, she points out, can take place in families. Adults adopting children must be tracked. She hopes for better coordination of law enforcement, and that victims be compensated. Fang opposes reducing the age of criminal responsibility: incarceration is too harmful. Keep youth detention facilities, she advises, embedding them in protective legislation.

Liu Yadong 刘亚东 | Science and Technology Daily editor-in-chief

Trained in electronics in the 1980s, Liu spent his career at the Ministry of Science and Technology’s Science and Technology Daily. China’s scitech industries lag much further behind than the media suggest, he argues, listing scores of technologies that China is far from independently producing. Liu sees two major bottlenecks: an outdated state-led innovation model and lack of ‘scientific spirit’. Research breakthroughs stem, he suggests, from free exploration and fierce market competition. After the 2019 Huawei ban, he called for balancing opening and ‘indigenous innovation’, agreeing with Chairman Xi that one can never truly purchase core technologies.


policy ticker highlights

gems from our feed of policy releases and domestic debate

global impact

liberalising trade in Hainan

State Council, Yicai, Weixin | 1 June

context: The liberalisation will happen gradually, as Hainan’s economy and infrastructure are still underdeveloped compared to wealthier provinces.

Hainan’s FTP (free trade port) development will see its first-line border (between Hainan and abroad) opened but its second-line border (between Hainan Island and the mainland) tightened, according to ‘Overall plan for the construction of Hainan Free Trade Port’. The plan largely meets market expectations, even exceeding them in some areas, says Cui Fan 崔凡 University of International Business and Economics professor.

At the first-line border, goods can move freely and without customs duty, unless featuring on prohibited/restricted lists. Import duty will be applied to goods moving from Hainan to the mainland, but products in ‘encouraged sectors’ with more than 30 percent value-added on the island will be exempted (import VAT and consumption tax still apply). This design will ensure that Hainan’s producers will still be able to tap into the domestic market, notes Cui.

In the initial phase (by 2025), Hainan will

  • pilot the first/second-line border system in special customs supervision zones (e.g. Yangpu bonded port area)
  • exempt customs duties, import-related VAT and consumption tax for certain goods
    • capital goods unless on a negative list
    • a positive list of
      • transport
      • raw materials for local consumption or processing trade
      • locally consumed goods
  • grant overseas service providers national treatment
  • manage cross-border service trade with a negative list
  • expand visa-free policy to cover business trips, visits, seeing relatives, medical purposes, exhibition involvement, sports visits

Cui considers the duty-free policy on imported goods for local consumption a major breakthrough. Its management will potentially transition to a negative list (CP note: from ‘allowing what is listed’ to ‘allowing everything unless otherwise specified’) when the second-line border is fully established between the island and the mainland. Nevertheless, products entering Hainan from the mainland may not be duty-free and will have to compete with duty-free foreign products.

The measures will lift hurdles faced by foreign service providers (e.g. foreign doctors are prevented from practising due to qualification recognition and visa issues), says Kong Qingjiang 孔庆江 China University of Political Science and Law dean of international law.

governance

People’s Daily recounts Xi’s 2003 fight against SARS

People’s Daily Online | 15 June

context: This abrupt yet exhaustive recounting of Xi’s accomplishments in Zhejiang follows news of a new outbreak of COVID-19 in Beijing. The commentary, which was not published in major provincial newspapers, appears to be defending Xi’s approach then and now, perhaps preemptively.

A lengthy account of CCP chairman Xi Jinping’s 习近平 tenure in Zhejiang appeared in People’s Daily, noting that when he assumed office there in October 2002, the province, though undergoing economic and social development, was encountering problems. In order to promote reform, Xi worked ‘around the clock’, inspecting 11 cities and 25 counties over 118 days. In 2003, the outbreak of SARS was followed by an unprecedented summer drought. Xi carefully organised a strategic response and led Zhejiang people to face these difficulties, achieving a major victory in the fight against SARS, which promoted better and faster economic and social development. Many of Xi’s initiatives in Zhejiang were later emulated by other cities.

The commentary states that Xi

  • dealt decisively with the SARS outbreak
  • put people’s safety and health first
  • fought a carefully prepared battle
  • convened meetings many times
  • listened to special reports
  • issued directives immediately after consulting with experts
  • repeatedly communicated with everyone
  • unified thought and action across the province
  • pioneered a dual strategy of preventing SARS and promoting development
  • went deep into the epidemic prevention frontline
  • made scientific decisions
  • attached great importance to supporting the rest of the country
  • worked to ensure enterprises recovered from SARS
  • looked after the impoverished
  • used the crisis to emphasise upgrading public health
  • thought about non-traditional security challenges

SARS in 2003 tested Zhejiang’s ability to control complex situations and deal with risks, and exposed some problems. The experience spurred Xi’s thinking in non-traditional security—safety is not only about production and defence but also addresses social harmony and stability by attending to public health and emergencies. Xi’s success came from his long-term grassroots work and profound feelings for the masses, the commentary concludes.

macroeconomy

macroeconomic policy highlighted at 2020 Lujiazui Forum

Lujiazui Forum (1), Lujiazui Forum (2), Lujiazui Forum (3), Lujiazui Forum (4), Lujiazui Forum (5), Lujiazui Forum (6), Lujiazui Forum (7) | 19 June

context: An annual political fanfare, economic policymakers and experts take this opportunity to boost market confidence. Noticeably, this year’s forum seems to place greater emphasis on Shanghai’s role as an international financial centre and on RMB internationalisation. With deteriorating stability in Hong Kong, it is Beijing’s hope to replace the ‘capitalist enclave’ with a more socialist city—Shanghai—as the financial hub. The emphasis on RMB internationalisation and the theme of this year ‘new starting point, new mission, new vision’ jointly signal the state’s ambitions for global economic leadership in the post COVID-19 world.

Liu He 刘鹤 vice premier commissioned Yi Huiman 易会满 CSRC (China Securities Regulatory Commission) chairman to deliver a keynote speech on his behalf at the 18 Jun Lujiazui Forum, emphasising

  • a ‘triangular dynamic’ between finance, technology and industries to make Shanghai the forefront of financial opening
  • flexible and robust monetary policy to enhance countercyclical adjustment while fostering circulation between finance and the real economy
  • supply-side reform and high-quality development to service the real economy, in particular on monetary policy transmission, financial innovation, and financial structure optimisation
  • ‘institution building, no interference, zero tolerance’ principles in developing capital markets
  • risk anticipation to precede market trends, balancing risk prevention and growth stabilisation

Yi Gang 易纲 People’s Bank of China governor fleshed out priorities of monetary policy

  • enlarging quantitative aggregate money supply to solve difficult access to financing
  • pushing for interest rate marketisation to alleviate high financing costs
  • strengthening non-performing loan write-off and disposal to sustainably support the real economy
  • seeking effective money and credit growth while maintaining balance sheet stability

Guo Shuqing 郭树清 China Banking and Insurance Regulatory Commission chairman pledged China will maintain its current normal monetary and fiscal policy; it will not commit to massive stimulus nor monetisation of fiscal deficit. This is not the ‘last supper’, and the government needs to save policy space for the future, argues Guo.

Pan Gongsheng 潘功胜 State Administration of Foreign Exchange said a series of pilots on foreign debt financing, cross-border asset transfer, and cross-border RMB business will be launched in Shanghai.

Fang Xinghai 方星海 CSRC vice chairman says the economic and technological drivers of globalisation—efficient resource allocation and low cost of transportation and information—still hold, so ‘re-globalisation’ may happen after COVID-19. By making Shanghai a global financial hub, argues Fang, China can push for financial opening up and RMB convertibility to facilitate international investors.

Wang Jiang 王江 Shanghai Jiaotong University said the ultimate goal of RMB internationalisation is to be an equal contender of USD. The short-term targets are JPY and GBP, while the medium-term goal is to beat EUR.

Zhu Min 朱民 Tsinghua University boasted that RMB has become the largest currency exchange circle in the world, with a total of 3.47 tn in currency swap agreements with 39 countries. He expects the main contribution of RMB lies in investments, Belt-and-Road, and digital currency.

agriculture

Beijing COVID-19 outbreak traced to ag wholesale market

Caixin,China Economic Daily, Yicai | 14 June

context: Fresh ag products, particularly imported salmon, are at the centre of a storm after new outbreaks of COVID-19 in Beijing’s ag wholesale markets. Failing to stipulate strict food safety inspections to keep the virus at bay, current food supply chain regulations will face a new round of reform. Priority is to prevent the spread of COVID-19 through the food cold chain, probably by adding the virus to the quarantine list. Salmon business will face a sharp drop in demand from the Chinese market in the short term.

Nearly two months after Beijing appeared to have stamped out the COVID-19 virus, a new outbreak has been reported in Beijing since 11 Jun 2020. The outbreak was traced to Beijing’s largest ag wholesale and distribution market Xinfadi 新发地. Cutting boards of imported salmon tested positive for COVID-19, reveals Xinfadi’s chairman in an interview, raising concerns over the safety of imported seafood and other fresh ag products.

Although experts confirm that it is extremely unlikely for seafood like salmon to be the virus carrier, nationwide retailers and food service channels rushed to cancel salmon orders, spelling real trouble for the business which is already struggling due to the collapse in consumption.

Whole genome sequencing by Beijing Centre for Disease Control and Prevention shows the virus causing the Beijing outbreak comes from Europe, but the vector and carrier of the virus remains unclear. A possible channel for spread is through the seafood supply chain, says Wu Zunyou 吴尊友 Chinese Centre for Disease Control and Prevention (CDC) chief epidemiologist.

Nationwide actions towards stricter food safety management will cover the whole supply chain. Along with Tianjin, Guangdong, Henan, and Gansu, BAMR (Beijing Administration for Market Regulation) strengthened its food safety inspection immediately, targeting

  • fresh ag products, including frozen pork, beef, lamb, poultry, and aquaculture products
  • wholesale market
  • ag product dealers
  • catering business

Certifications of origin and food safety are required for all edible products on sale. Imported animal and food products must have quarantine certification. But whether to add COVID-19 testing to the quarantine list for seafood and animal products, particularly imported ones, remains an urgent question to be answered, according to Caixin.

society

R&D facilities to recruit more graduate students as research assistants

Weixin,The Beijing News, Ministry of Science and Technology | 1 June

context: This move adds a new tool to the state’s policy package against unemployment. Vocational, undergraduate and graduate education will all increase in size in 2020.

MoST (Ministry of Science and Technology) and six agencies announced they are encouraging research facilities to recruit more university graduates as RAs (research assistants) in state-funded R&D programs, namely

  • NSFC (Natural Science Foundation of China) projects
  • 2020 and 2030 megaprojects
  • NKPs (national key R&D projects)
  • SKLs (State Key Laboratories)
  • Technology Innovation Guiding Fund projects
  • National Engineering Research Centres
  • National Technological Innovation Centres
  • National Clinical Medicine Research Centres
  • National Sci-tech Resource Sharing Platforms

The notice stipulates fair work measures, particularly

  • RA compensation must at least reach minimum wage in localities
  • employers must enrol RAs for required social security plans

Being part of the state apparatus, state-funded research facilities have the responsibility to help alleviate post-COVID-19 unemployment; for fresh graduates, working as RAs helps them gain first-hand research experience, says Huang Hui 黄辉 University of Chinese Academy of Sciences head of human resources.

Graduate education is also set to expand. NPC (National People’s Congress) approved ‘2020 draft plan for national social and economic development’ targets at admitting 1.11 million graduate students in 2020, up 21.48 percent y-o-y, a two-decade record.

Recognizing the state’s effort to facilitate job seeking, EDU worries that expansion in higher education might fail to accumulate human capital but simply delay the peak of labour oversupply; it may also lead to degree inflation.

energy and environment

2020 reductions in coal capacity announced

National Development and Reform Commission | 18 June

context: The centre has begun reining in coal-fired power construction, telling localities to refrain from squandering investment on dirty power.

National Development and Reform Commission and five other ministries jointly released ‘Notice on eliminating excess capacity in key areas in 2020’. The Notice announces

  • consolidating the results of de-capacity
  • deepening supply-side structural reform of the steel industry
  • optimising coal-fired power
    • total coal-fired power installed capacity should be capped below 1.1TW
    • strictly controlling new coal-fired power
    • promoting coal-power joint ventures, mergers and acquisitions, and transformations
    • improving coal trading market mechanisms
    • shutting down sub-standard coal power units
    • promoting coal-fired power emission upgrading
    • adding coal power capacity based on actual needs
  • speeding ​​up disposal of ‘zombie enterprises’
  • strictly controlling steel and coal capacity
  • ensuring supply stability
  • improving employee resettlement
  • promoting asset and debt disposal in accordance with laws and regulations
  • improving efficiency of use of special awards and supplementary funds
  • accelerating high-quality development
  • improving industry governance
    • promoting steel, coal and power companies’ mergers and acquisitions
    • encouraging economic transition of coal- and steel-intensive cities

science and innovation

engineering software ban prompts call for domestic innovation

Intellectual, Science Net Blog (1), Science Net Blog (2), Sina Tech | 15 June

context: The US ban of a specialised but widely used software tool yet again illustrates China’s reliance on foreign technology. Although only two Chinese universities lost access, the step will add fuel to the politicisation of science, technology and innovation in the China-US conflict. Although part of Made in China 2025, domestic industrial software still trails international peers.

Domestic innovation is desperately needed in research and industrial tools, comments The Intellectual, as science and engineering scholars increasingly fear losing access to US-sourced cutting-edge engineering tools. Harbin Institute of technology and Harbin Engineering University lost access to MATLAB on 6 June 2020, a highly popular engineering software developed by the US firm Mathworks. The inclusion of these universities on the US entity list caused Mathworks to terminate their licenses. Many popular research and engineering tools are developed in the US, notes the publication, and open-source and commercial alternatives have their shortcomings.

Many researchers on Zhihu and Sciencenet concurred with The Intellectual‘s assessment. The MATLAB ban reinvigorates the spirit of original innovation, argues Wang Lixin 王立新 UCAS (University of Chinese Academy of Sciences) professor, as researchers can no longer skip key research steps with the software’s preset tools. MATLAB is also in decline, adds Wang.

Other researchers are more pessimistic. Business researchers and engineers do not have the capacity to undertake these steps, refutes Wang Hongyu 王虹宇 Anshan Normal University professor. It can take as many as ten years to build the highly specialised tools developed by engineers, some commentators note on Zhihu, and the ecosystem of plugins developed over the decades. (CP note: MATLAB was released in 1984.) Industrial enterprises and scholars developed path dependency, an anonymous mathematics professor notes. Domestically developed software can hardly gain a foothold in the market, these commentators point out.



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