roundup from our portfolios

The summer meetings of senior leaders were unlikely to reveal leadership tension or hesitation. Xi Jinping seemed set on proclaiming himself ‘Chairman’, a symbolic crowning as lifetime ruler and sage to add to earlier elevation in the 19th National Party Congress (October 2017). Concerns about crime, Party-building and local governance were on the surface very routine, yet carry distinct overtones of hunkering down in the face of 2020’s adverse winds.

Even more in this vein is the Politburo-endorsed ‘dual circulation’ (see cp.signal new macroeconomic paradigm) now appearing as the Solution to Everything. Gaps in its operating code spark debate on defining a ‘domestic loop’ running from shantytown renovation, to ginning up city cluster connectivity, (see infrastructure signal below), through to sustainable development.

Jobs will remain at a premium in H2, declare ministries, spurring added funding support for SMEs, and subsidies for re-training and employment insurance. Tackling financial risk is another pressure point. Focus is on small and medium bank recapitalisation and NPL disposal.

The tsunami of US sanctions against Chinese tech firms leaves Beijing aggrieved but restrained. Trump, deemed eager to boost his re-election prospects by bashing China, must be denied the fuel of retaliation, despite fears Biden will turn out tougher.

Given the dual circulation pivot, Beijing’s drive to real (not symbolic) self-sufficiency turns attention to innovation at home. Semiconductor-related incentives, and standard-setting for AI and smart cities lead the IT agenda.

Debate over the PRC’s proposed Data Security Law echoes privacy concerns being raised in the US and Europe.

Geopolitical ambitions took other hits this month. BRI’s (Belt and Road Initiative) current course faced doubts in the policy community, while BRI partners Belarus and Thailand faced protests that could not be named ‘colour revolutions’. In the Middle East, the US-backed UAE-Israel normalisation undermined ‘China solutions’ for the region. Despite rising tension with the US in the South China Sea, criticism of the Democrats’ 2020 platform, which sidelined long-standing subscription to ‘one China’, was mild. ‘Wolf warrior’ rhetoric against Australia is also somewhat dialled down, even Global Times calling for talks.

Claims of ironclad food security rose, in apparent inverse proportion to the spotty availability of wheat for state purchase, soaring corn prices and a much publicised campaign against gourmandising and wasting food. Blaming speculation and hoarding in a panicky market, ag officials swore self-sufficiency in staple crops was well below danger levels. After years of decline, a resurgent early-rice and projected bumper autumn harvest, lent some support to official confidence, despite persistently high prices.

Basic Medical Insurance underwent adjustments, lowering drug prices, covering more effective drugs and saving insurance funds. University grads and migrant workers are the critical cohorts seeking employment. Universities are thus forced to trim their programs to ease pathways to jobs.

National Parks are to be officially confirmed by end 2020. Waste treatment and ecological conservation gained Central attention in August. A series of directives on sewage and solid waste emerged, while Xi urged agencies to work together on eco governance of the Yangtze River Delta.

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featured analysis

infrastructure investment to bridge gaps in economy
infrastructure investment to bridge gaps in economy

infrastructure: ‘two new, one critical’

A new investment framework focuses on new (along with and traditional) infrastructure and new urbanisation. To improve amenities in accord with local needs, it turns to private investment and public–private partnerships more than ever before. full post open access →

august policy movers

policy professionals in and out of the establishment

Xiao Yaqing 肖亚庆 | Ministry of Industry and IT minister and Party secretary

A firm believer in SOE expansion, Xiao is MIIT’s third minister since its founding in 2008. Replacing Miao Wei 苗圩, who served for a decade, the appointment is no surprise. Xiao’s experience in SOE administration invites comparisons to MIIT’s first minister, Li Yizhong 李毅中, and suggests that making SOEs more innovative may be a priority. Xiao pushed for wide-ranging reforms during his 2016–19 tenure as the director of State‑owned Assets Supervision and Administration Commission, following decades in the state-owned nonferrous metal sector, notably as the managing director of Chalco, notorious for its attempt to gain a large stake in Anglo-Australian miner Rio Tinto.

Zhang Jiadong 张家栋 | Fudan University director of South Asian studies

Despite stronger India–US ties, India remains committed to balancing China and the US, argues Zhang: its interests sit poorly with US hope for another Japan-like proxy. The June clash does not alter bilateral strategic positioning, says Zhang, while ongoing regional competition is the more important issue. While at the Chinese Embassy to India, he accompanied Premier Li Keqiang and Chairman Xi Jinping on their trips to New Delhi in 2013 and 2014.

Guo Jiaofeng 郭焦锋 | State Council Resources and Environmental Policy Institute assistant director

Veteran oil and gas specialist Guo notes that despite some progress, market reform for natural gas remains limited. Gas extraction rights are primarily granted to CNPC, Sinopec and CNOOC. Curbing over-concentration of such rights and raising utilisation efficiency are crucial to upstream reform. Decoupling urban gas transmission and sales services, reforming urban gas franchise rights, and setting up marketised gas pricing are needed to reform the downstream gas sector.

policy ticker highlights

gems from our feed of policy releases and domestic debate

global impact

reforming BRI under ‘dual circulation’

Caixin | 3 August

context: Domestic supply and demand are receiving unprecedented levels of attention as Beijing searches for a more resilient macroeconomic model. While trade and FDI are still welcomed, overseas infrastructure and investment may cool down amid heightened risks. Chen Gong’s recommendation for BRI mirrors many aspects of the ‘dual circulation’ model.

BRI cannot continue in accordance with original plans due to rising hostility, debt and declining foreign reserves, argues Chen Gong 陈功 Anbound founding partner, citing

  • 30-40 percent of BRI projects in stagnation
  • the UK may withdraw from AIIB (Asian Infrastructure Investment Bank) over Hong Kong issues

Instead of risking a complete failure, BRI should undergo structural reform from ‘developing a common market system’ to ‘developing a common market’, argues Chen, pointing out

  • ‘developing a common market system’ entails common trade and legal standards, which is costly and unrealistic at present
  • ‘developing a common market’ focuses on sustaining the global market’s size and openness, so
    • China’s large market should stay open and be further integrated into the global market
    • China’s capital should shift from global infrastructure investment to global procurement of consumers goods and means of production
    • capital markets should be opened up
    • domestic markets should be expanded


Xi urges ‘greater achievements’ during Anhui trip

People’s Daily | 22 August

context: In his first major inspection since the likely conclusion of the annual summer meeting of senior leaders, Xi seems at pains to stress policy continuity, signaling that there may be those who are pressing for different emphases.

CCP chairman Xi Jinping 习近平 visited Anhui 18-21 August, and stressed

  • adhere to seeking progress within stability
  • persisting with reform and opening up, and high-quality development
  • deepening supply side structural reform
  • doing a good job in the ‘three major battles’, ‘six stabilities’, and ‘six guarantees’
  • achieving decisive victories in comprehensively building a moderately prosperous society and in poverty alleviation
  • making greater achievements in the new development pattern of ‘dual circulation’
  • making greater progress in constructing a beautiful Anhui

Xi stated ecological protection and economic development are not contradictory but dialectical. Only by protecting the environment and giving full play to ecological advantages can we realise high-quality development. Flood control and disaster relief remain arduous tasks, he noted, and Party committees and governments at all levels should fight continuously and not fear fatigue. Preventing poverty caused by epidemics and disasters, and adhering to targeted poverty alleviation and assistance are important tasks. We should firmly shoulder the responsibility of stabilising food security, he urged, and improve the quality, efficiency and competitiveness of agriculture.

The anti-epidemic fight and the struggle against flooding show that as long as the Party is in power for the people and depending on their assessment, it will always win. Party members need to

  • be firm in their ideals and beliefs
  • improve their ability to distinguish between right and wrong in politics
  • maintain political determination
  • control the political situation
  • prevent political risks
  • remember anti-corruption is comprehensive
  • promote strict governance to achieve political clarity


government and market efforts needed to foster domestic circulation

Economic Observer | 8 August

context: The Q2 Politburo meeting laid out the strategy emphasising the ‘domestic loop’ of economic circulation. This is in part a passive response to intensifying conflict with the US, but the shift towards a more closed economy may also prevent external influence over the domestic political landscape, which might menace the regime’s survival. Those who fail to appreciate state’s potential capacity to close the economy are ignorant of the history.

He Fan 何帆 Shanghai Jiaotong University professor argues it is a misconception that the emphasis on domestic circulation reverses the opening up and reform and will lead down the path of ‘closing borders and cutting off from the rest of the world’. Closing borders, says He, focuses on ‘excluding the foreign’ rather than ‘highlighting the domestic’. In the former scenario, consumption and production are separate, and the market forces are constrained. There is no market circulation, and resources are distributed through government directives. In modern times, argues He, once a market opened up, it is difficult to return to a closed status; therefore, a complete reversal of opening up and reform is impossible.

The dual circulation targets two conflicts: production efficiency versus stability and security in an increasingly complex external environment; the immense productive capacity of Chinese firms serves international markets, leaving domestic middle-class demand unattended, says He.

On the first conflict, Chinese firms have been trying to break monopolies of international firms. After years of technological and capital accumulation, many domestic firms could substitute foreign competitors in petrochemicals, mobile phones and automobiles. Substituting foreign products with domestic ones in supply chains would continue in the future, says He.

On the second conflict, leveraging China’s strong capacity to service the domestic middle class requires a shift from an outward-oriented industry ecosystem, with firms especially susceptible to external shocks. To facilitate exporting firms servicing domestic markets, local governments in Zhejiang, Jiangsu, Fujian, Guangdong, and Shandong are exerting their weight. Market actors are also on the move; internet platforms like Yeation, Biyao, and Pinduoduo are helping companies explore domestic markets and consumers, adds He.

The relative effectiveness of government-led and market-initiated models is unclear, but both are indispensable in building domestic circuits, says He.


state procurement of wheat declines

Caixin,The Beijing News, Sina Tech | 13 August

context: The latest food security concern comes via a decline in the state purchases of the summer wheat harvest. Government purchasers were outbid by private buyers willing to offer prices higher than the minimum purchasing prices (MPPs). Wheat prices may further rise as farmers are hoarding grain for better profits.

State procurement of wheat in major producing areas totalled 42.9 million tonnes from June to 5 August, a drop of about 9.4 million tonnes y-o-y, per the State Grain and Reserve Administration.

Instead of being an augury of a wheat shortage, this demonstrates the greater role played by private traders in grain purchases, comments Hu Bingchuan 胡冰川 Chinese Academy of Social Sciences Rural Development Institute researcher.

Wheat is feeling the spillover effects of soaring corn prices, which reached a five-year high on 31 July and forced producers to switch to wheat as an alternative feed. The well-performing open market resulted in higher wheat prices than the protective MPPs. According to Sublime China Information, an online commodity pricing platform, level I wheat prices offered by flour companies were between 2.4 and 2.8 per kilogram, compared with the MPP of 2.32 per kg.

Grain shortage is overrated at this stage, says Huang Jikun 黄季焜 Peking University Centre for Chinese Agricultural Policy director. The fundamental challenge to grain supply lies in feedstuff shortages, while in the short term, given the huge amount of rice and wheat annual outputs, the most urgent issue remains cutting national grain reserves to a ‘scientific level’. The per capita demand for staples has been decreasing over a number of years, whereas consumption of high-quality rice and special-purpose wheat is growing. The trend shows the direction for adjusting the planting structure, says Huang, suggesting

  • replacing the current MPP mechanism with rice and wheat producers’ income subsidies
  • encourage producing high-quality products with higher prices


tackling migrant worker employment and entrepreneurship

Ministry of Human Resources and Social Security, National Business Daily | 8 August

context: Migrant workers and uni graduates are recognised as the two groups hardest hit by post-COVID-19 unemployment. Many channels to employment have been outlined for the former, including mobilisation of the state sector, expanding on-the-job training schemes and promoting flexible employment. But new policies are still needed to help them find stable jobs.

MoHRSS (Ministry of Human Resources and Social Security) and 14 other agencies issued ‘Opinions on employment and entrepreneurship of migrant workers’ on 8 Aug 2020. The Opinions call for

  • broadening channels for employment
    • implementing subsidies to stabilise existing jobs
    • creating more job opportunities
    • supporting multi-channel flexible employment
  • spurring local employment
    • developing rural industries
    • promoting large construction projects
    • supporting returning migrant worker entrepreneurs
  • strengthening fair jobs services and rights guarantees
    • improving employment services
    • bettering skills training
    • protecting labour rights
    • guaranteeing livelihoods
  • prioritising employment of impoverished persons
    • maintaining their entry into the workforce
    • expanding local jobs for this group
    • focusing efforts in key impoverished or epidemic-affected areas

Li Zhong 李忠 MoHRSS vice minister stressed that migrant workers are a key target of employment policies, National Business Daily reports. The migrant workforce is now back to 97.3 percent of levels in the same period last year, Li noted. Migrant worker employment is still under pressure, however, as they still lack job stability; some have even had to return once again to their hometowns, he admitted. A key method for absorbing migrant workers is through flexible employment.

energy and environment

Yangtze River Delta scales up joint eco protection

Yicai | 23 August

context: An economic hub making up 11.7-percent national population and 20-percent economic output, the Delta region is regarded as the spearhead of a new development model. Environmental protection in the region must be emphasised hand-in-hand with economic development, says Xi. Pilot programs are announced earlier, and central funding is ready to pour in: the size and importance of the Yangtze River region necessitate central support and inter-provincial cooperation.

Chairman Xi Jinping 习近平 addressed a Yangtze River Delta development forum in Hefei on 20 August, stressing the need to promote integrated environment protection of the Delta. The region should take the lead in setting up joint protection and governance of the environment, says Xi.

He suggests

  • prioritising the protection and restoration of Yangtze River environment
  • promoting municipal sewage and waste treatment
  • improving tailings management and addressing pollution from the chemical industry, agricultural non-point sources and vessels
  • facilitating treatment and recycling of organic waste in the Taihu Lake region

Despite progress in pollution treatment, the Delta region

  • suffers from severe air pollution in autumn and winter, with an average PM2.5 level 1.8 times that of other seasons
  • lags in integrated development of infrastructure, environment protection and public services

Ten cities failed to achieve PM2.5 level reduction targets, five of them seeing a y-o-y increase in PM2.5 level, during autumn and winter 2018-19.

The centre and localities are ramping up actions

  • the first phase of National Green Development Fund with a total scale of ¥88.5 bn will mainly invest in the Yangtze River Economic Belt
  • Jiangsu and Anhui implemented cross-provincial compensation mechanism at the Chenqian section of Chuhe River
    • in 2019 water quality of the Chenqian section reached grade III, with Jiangsu compensating upstream Anhui 20 million
  • Shanghai plans to promote environment standards, monitoring, and law enforcement unification
  • Shanghai, Jiangsu, Zhejiang, and Anhui signed a memorandum to unify environmental penalty criteria in June 2020

science and innovation

new AI standards committee emphasises global collaboration

State Administration for Market Regulation, Science and Technology Daily | 8 August

context: Standards are becoming a geopolitical battleground, as Beijing believes Chinese standards for 5G and other emerging technologies pave the way for tech leadership. China is already involved in global AI standard-setting, as SAMR prepares a comprehensive national standardisation strategy towards 2035.

Twenty key AI tech and ethics standards are to be devised by 2021, according to Guidelines on AI standards development from NDRC (National Development Reform Commission), MIIT (Ministry of Industry and IT), CAC (Cyberspace Administration) and two other agencies. Standards of key domains and industries should be in place by 2023. Major components of the standards include

  • safety and ethics
    • safety
    • privacy protection
    • ethics
  • foundation
  • basic technology, products and platforms (CP note: all prominent AI development platforms are foreign)
  • common and applied technologies
  • products and services
  • industry applications, including manufacturing, healthcare, governance services, public security and courts

An AI subcommittee was set up by TC260 (National Information Security Standardisation Technical Committee), reported Scitech Daily, at a 6 August conference jointly hosted by MIIT’s CESI (China Electronics Standardisation Institute), Tencent Youtu and iFlytek. The subcommittee will, following the Guidelines, devise key standards, conduct new infrastructure-related research and strengthen international collaboration.

There is an urgent need for AI standards, says Guo Huanxin 国焕新 SAMR (State Administration for Market Regulation) standards management official, who points that SAMR already

  • set up national AI standardisation committee and expert consultation group (CP note: in January 2018)
  • facilitated standard-setting for key tech foundations

Under SAMR and MIIT guidance, TC260 already developed several standards, notes Zhao Bo 赵波 CESI director, and submitted proposals to international bodies.

The subcommittee consists of 48 expert members and 173 institutional members

  • chairperson
    • Lin Ning 林宁 former CESI Party secretary
  • vice-chairpersons
    • Tao Jianhua 陶建华 CAS (Chinese Academy of Sciences) Institute of Automation researcher
    • Huang Tiejun 黄铁军 Peking University professor
    • Wu Fei 吴飞 Zhejiang University professor

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