roundup from our portfolios
A ‘new development stage’ is at hand, Xi Jinping told provincial and ministerial cadres convening at the Central Party School. National development is now poised, he proclaimed, to advance from ‘standing up’ and ‘getting rich’ to ‘becoming strong’. ‘Chinese characteristics’ remain keys to the road ahead; this was stressed also by CCP Central Committee’s first ever 5-year plan dedicated to the ‘rule of law’.
Fostering BRI (Belt and Road Initiative) ties and supporting domestic vaccines were major topics of Foreign Affairs Minister Wang Yi’s 王毅 trips to Africa and Southeast Asia. On the domestic front, MofCOM (Ministry of Commerce) is urging localities to help businesses embrace and comply with RCEP. To protect domestic firms from ‘unjustified extraterritorial application of foreign legislation’, MofCOM issued its own screening provisions, resembling the EU’s and those of other countries. Vague wording permits the PRC to use it more liberally, should it face sanctions.
GDP officially grew by 2.3 percent in 2020; while consumer spending lags, finance was the sector to receive most senior attention in January. A slew of bank-related measures took effect. These cap banks’ real estate-related loans, and set new criteria that prioritise national development and the real economy.
Fintech was a target: third-party bank deposit platforms were banned, and measures on online-payment monopolies floated for public comment. The picture is somewhat clearer, but criteria defining monopoly are awaited.
The national carbon market entered its first compliance cycle, kickstarted by Beijing. Over 2,000 coal-fired power firms will be covered. Carbon quotas will be allocated freely at first; auctioning will phase in. Despite the initial lax design, the market is expected to scale up, given new ambitious climate targets. Renewables registered staggering growth in 2020: nearly 72 GW of wind power was added, surpassing the previous three years’ total. Solar also reached a record high.
With absolute poverty formally eliminated, macro rural policy is shifting to ‘rural revitalisation’, endlessly reiterating the building of a modern ag and rural sector (it no doubt was on the agenda of the first communist Party meeting in 1921). It sets the tone for the coming 14th 5-year plan: food security is more urgent than ever; rural industries and entrepreneurship will also be nurtured to boost the off-farm economy. Hard and soft infrastructure (e.g. health, pensions and grassroots governance) in rural regions will both see new funding.
With the ‘Western declinism’ narrative officially nurtured, state academic institutions, SOEs and private enterprises are on notice to tackle technology and innovation imperatives. Problems are abundant: tech giants from Alibaba to Bytedance face scrutiny from all regulators, anti-monopoly, cyberspace, fintech, labour and more. The research establishment confronts fresh criticisms over scientific integrity, undermining the long-term goal of boosting the PRC’s research capacity.
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Viable and profit-driven, the DSR covers all things digital along the virtual path of BRI: digital economy, e-commerce, IT infrastructure, smart cities and more. The 14th 5-year plan is sure to deliver more policy support, above all in digital trade, data rules and urging third-party buy-in. full post open access →
january policy movers
policy professionals in and out of the establishment
Li Shulei 李书磊 | CPS (Central Party School) vice president
Graduate of Peking University, Li has spent most of his career at CPS. Briefly heading Fujian’s Propaganda Department, he returned to the capital in 2015 to serve as Party secretary for municipal discipline. Joining CCDI and NSC, he served as vice head of both agencies concurrently. Deemed a rising éminence grise, Li now heads CPS at full ministerial rank. He will likely oversee upcoming efforts to hone the ‘new development stage’.
Lu Hongzhou 卢洪洲 | Shanghai Public Health Clinical Centre Party secretary
The discoverer of human infection by H7N9 in 2013, Lu is Party secretary of Shanghai’s dedicated COVID-19 hospital, and on the national expert group for COVID-19 treatments. Commenting on a recent rural breakout, Lu deems rural clinics to be virus spreaders. They must institute social distancing, he insists, and quarantine measures. If they cannot test patients, they should refer those with symptoms to urban hospitals or collect samples for testing facilities. This hints at how alarmed he is at the gap in services.
Lian Ping 连平| Zhixin Fund chief economist
Peking University graduate Li is a CPS veteran. Briefly heading Fujian’s Propaganda Department, he returned to the capital in 2015 to run the Party discipline system. Joining CCDI and NSC, he served as vice head of both agencies concurrently. Deemed a rising éminence grise, Li now heads CPS at full ministerial rank. He will likely oversee upcoming efforts to hone the ‘new development stage’.
policy ticker highlights
gems from our feed of policy releases and domestic debate
renewed emphasis on Belt and Road at the start of 2021
context: Ministry of Foreign Affairs has pushed back against the criticism of falling BRI (Belt and Road Initiative) investment in the foreign English-language press. While policy banks’ and high-level government investment may be slowing, business activity at the level of firms is moving forward.
Wang Yi 王毅 minister of Foreign Affairs started the year with trips to African and ASEAN countries. He highlighted both BRI and vaccine diplomacy on his trips. Highlights are
- Africa trip
- Congo (DRC)
- Wang highlighted BRI MoU’s signed with DRC and Botswana and discussed future Africa–China relations, pointing out China will
- continue to help develop Africa’s transport, energy, and communications infrastructure
- support the construction of free trade zones in Africa and develop large related markets in both China and Africa
- promote investment to help industrialise Africa
- strengthen cooperation in scitech innovation, particularly digital economy and green development
- Southeast Asia trip
- the Philippines
- from January 11 to 16, and reached broad consensus with other countries on uniting and cooperating in response to the epidemic and promoting the quality and upgrading of China–ASEAN relations
- discussions highlighted
- the countries have purchased or received China’s COVID-19 vaccine
- new BRI projects were signed
- China and Indonesia discussed further opening the Chinese market to Indonesian exports and China building 5G and cloud computing infrastructure in Indonesia
Imports and exports to BRI countries grew by 1 percent in 2020, according to GAC (General Administration of Customs) data. In addition, non-financial direct investment increased by of 24.9 percent. A recent report on BRI risks by China Chengxin RAEX-Europe Rating and VIS Group noted
- East Asian countries face lowest risk
- South Asia and Central Asia are most at risk due to COVID-19 and a global recession impacting debt repayment
- in general developed nations also face less risk while high-risk countries include
The focus of BRI has expanded from infrastructure and M&As to include trade, climate change cooperation, and poverty alleviation, notes Wang Dan 王丹 Hang Seng Bank chief economist. Due to increased investment scrutiny in Europe and the United States, Chinese investment activity will pivot from developed to developing countries, and mergers and acquisitions by Chinese companies in developed countries will be similarly reduced.
call for Party control over propaganda ahead of CCP’s centenary
People’s Daily | 6 January
context: In July 2021 the CCP will celebrate its 100th anniversary. The date is not only ritually significant but will also mark the beginning of a ‘moderately prosperous’ milestone in realising the ‘Chinese Dream’ and ‘the great rejuvenation of the Chinese nation’.
Wang Huning 王沪宁 Politburo Standing Committee member gave a speech at a Central Propaganda Department meeting on 6 Jan 2021. Wang stressed
- fostering essential reforms in publicity
- prioritising publicity and implementation of Xi Jinping Thought on Socialism with Chinese Characteristics for the New Era as an important political duty
- strengthening cadres’ and the people’s support of Xi Jinping as the core
- organising centennial celebrations of the founding of CCP with all-out efforts
- realising the cultural priorities set by the 14th 5-year plan to enhance ‘soft power’
- consolidating Party leadership over publicity
Huang Kunming 黄坤明 Propaganda Publicity Department minister subsequently underlined
- targeting the building of a culturally strong country
- innovating foreign publicity work
- maintaining ideological security
payment industry braces for tighter operations, antitrust regulations
context: In line with our expectations, regulators have picked up on the clean-up order issued to Ant Finance, releasing one of the most comprehensive regulatory documents for the payment industry to date. Further clarification is offered as to what constitutes market dominance and the regulatory orders that could follow, potentially setting a precedent for other industries.
Public comment is now open for ‘Regulations on non-bank payment institutions’ until 19 Feb 2021, drafted by PBoC (People’s Bank of China), the central bank, to
- strengthen the supervision and management of non-bank institutions
- regulate the operation of non-bank payment institutions
- strengthen anti-monopoly in the payment finance industry
The regulations stipulate
- licensing, establishment, changes in operations, and termination of business
- payment institutions must not engage in credit granting activities
- classifying payment business into
- deposit account business
- payment transaction processing business
- payment business operation rules
- regulatory requirements based on risk levels
- cross-institution payment services shall be processed by clearing institutions
- payment institutions must deposit reserves in PBoC or a commercial bank that meets requirements
- strengthening anti-monopoly in the industry
- maintaining a fair competitive market order
- situations that may trigger an early warning
- an institution’s share in the market reaches one third
- the total market share of two institutions reaches one-half
- the total market share of three institutions reaches three-fifths
- situations that may trigger an investigation of market dominance
- an institution’s market share reaches 50 percent
- the total market share of two institutions reaches two-thirds
- the total market share of three institutions reaches three-quarters
- PBoC may recommend measures to State Council’s anti-monopoly law enforcement agency to
- stop the abuse of market dominance
- stop the concentration of undertakings
- split institutions according to the type of payment business
- building a marketised exit mechanism
- guiding payment institutions to
- return to main business
- pay more attention to product innovation and meeting user needs
Clearly, the release is a ‘concrete manifestation’ of the spirit of strengthening anti-monopoly and of preventing the disorderly expansion of capital of the Central Economic Work Conference for 2021, believes Dong Ximiao 董希淼 Merchants Union Consumer Finance chief researcher.
rural revitalisation in the post poverty-alleviation era
context: With the end of the poverty alleviation campaign, Xi Jinping spoke of a ‘major victory’ while urging perseverance to prevent relapse into poverty. Rural revitalisation has now become the main theme, aiming for overall prosperity and modernisation of the rural and ag sector.
The highly publicized victory over absolute poverty does not mean assured security above the poverty line for rural residents, nor has overall prosperity been achieved in rural areas. The focus of rural work will now be rural revitalisation, which connects with the previous anti-poverty campaign to some extent, while further stressing the building of a modern ag and rural sector, says Liu Huanxin 刘焕鑫 MARA (Ministry of Agriculture and Rural Affairs) vice minister. The 14th 5-year period is also a transitional period for all former poor regions and households, which will be monitored frequently and supported if they again face difficulties. Based on protections against relapse into poverty, MARA will prioritise four tasks, namely
- securing the supply of grain and other key ag products by fostering the seed industry and improving farmland quality
- developing rural industries and rural entrepreneurship to boost off-farm income
- improving rural infrastructure and public services
- strengthening rural governance and education for farmers
Accounting for some 98 percent of ag operators and farming over 70 percent of arable land, smallholders remain the core of rural strategy. MARA aims to protect smallholders from being harmed by larger ag producers and further link them with modern ag. This should go hand in hand with the development of new ag operators. Smallholders that are willing to farm in the long term will be encouraged to upscale to family farms with a ‘moderate’ production scale. Both smallholders and family farms can be connected by cooperatives and supported by professional ag services, says MARA. As of October 2020, China had
- over 1 million family farms
- over 2 million farmer coops
- some 900,000 ag service organisations
rural areas become the new soft spot in COVID-19 control
context: Unlike previous outbreaks, the winter wave mostly started in rural areas. Some are in close proximity to international airports, suspected to be the sources of many outbreaks. The vulnerable multi-level care system is now fully exposed.
CCP Leading Group on Rural Affairs and Ministry of Agriculture and Rural Affairs jointly released ‘Announcement on preventing and controlling COVID-19 in rural areas’ on 14 Jan 2021, specifying
- utilising grassroots governments
- guiding farmers to practice social distancing, personal hygiene and environmental sanitation
- discouraging migrant workers from returning
- ensuring daily supplies for areas with COVID-19
- minimising the effect on transporting ag products
At the State Council press conference on 13 Jan 2021, Wu Hao 吴浩 NHC (National Health Commission) Committee on Disease Prevention and Control expert says strategies such as blocking entrances to villages are no longer working because transmission is more complex, reports Southern Weekly. Rural doctors are incapable of testing. Wang Baolu 王保鲁 Zhaosong Village rural doctor says he used to just give some anti-fever medicines to fever patients. Since COVID-19, he has asked all such patients to go to urban hospitals per government directives. But for some people in the 239 villages in Shanyang, Shangluo in Shaanxi province, going to the county hospital means a prohibitive 200 km journey. Though county-level hospitals are now capable of testing, Wang Baolu hopes testing kits can be developed for rural doctors, but Wu is concerned about biosecurity risks. So far, rural doctors are limited to taking patient samples.
Monitoring returning migrant workers is another challenge. Wang Bin 王斌 NHC Department of Disease Prevention and Control supervisory staffer calls on rural governments to register people returning from areas with COVID-19 or if they work in high risk industries such as importing cold chain food. Wu also warns urban villages could become vulnerable as they tend to have more migrants.
energy and environment
2021 national environmental work conference hosted
Ministry of Ecology and Environment | 22 January
context: Tasks for 2021 are in line with 14th 5-year plan priorities identified earlier. Notably, climate change moved up the agenda, with preparations concentrating on peaking emissions early.
Ministry of Ecology and Environment hosted 2021 national environmental work conference on 22 January. It admitted
- environmental protection continues to face structural and fundamental headwinds
- green mindset has yet to be firmly installed
- improvements are unsatisfactory
- pollution reduction results are unstable
- certain emissions sources are not covered
In 2021, the ministry will work on the following areas
- implementing 14th 5-year plan’s overall environmental protection plan and special plans
- drafting the action plan to peak emissions before 2030
- building a project reserve for nationally determined contributions
- speeding up the national carbon market
- advancing low-carbon pilots
- strengthening local carbon response capacity
- drafting ‘2035 national strategy for climate change adaptation’
- maintaining the reduction of air, water, ocean, soil and solid waste pollution
- drafting ‘Opinions for deepening fight against pollution’
- strengthening ecological conservation and restoration
- facilitating negotiations for the post-2020 biodiversity framework
- drafting ‘Guiding opinions for further enhancing biodiversity conservation’
- ensuring nuclear and radiological safety
- moving forward environmental inspections
- fending off environmental risks
- building institutional foundations
- drafting ‘3-year plan for building modern environmental governance system’
- organising technological research for jointly controlling PM2.5 and ozone pollution, and restoring the Yangtze River
- cracking down on the falsification of monitoring data
science and innovation
new entrepreneurial opportunities in a changed world
Weixin | 17 January
context: After several years of ‘mass entrepreneurship and innovation’, investment deals for start-ups fell for five consecutive years while a capital winter kicked in in late 2018. The state is still offering support to emerging industries as part of the secure supply chain drive, while investors mostly focus on safe bets (i.e. more promising firms), state-endorsed sectors (i.e. integrated circuits) and COVID-driven opportunities (online education and healthcare).
China will be the most important location where innovation flourishes, claims Lu Qi 陆奇 MiraclePlus and Y Combinator China founder, who addressed a seminar on entrepreneurship opportunities and identifies
- long-term trends accelerated under COVID-19 and the evolving global environment
- life sciences
- sustainable development and new energy
- the West’s decline and the East’s rise
- major structures through which the world grows
- science and technology
- government supports scientist-driven research in research universities and national labs
- big enterprises focusing on applied R&D and mission-driven research enterprises
- digitisation drives conventional research fields forward
- market environment and sustainable development
- no longer consider the environment as free real estate
- digitisation as a major trend in the business environment
- open source environment
- venture capital
- science and technology
- advantages China has
- innovation environment
- solid foundation of talent, capital, technology and market
- mature environment for commercialising technology
- a vibrant start-up scene
- urban environments conducive to innovation, like Shenzhen
- technology as the core driver
- 5 to 10 years before the domestic environment matures
- structural macroeconomic reasons
- consumption upgrading
- further urbanisation over the next decade
- population increase
- diverse population structure
- domestic and international environment
- new infrastructure
- innovation shift from the West to the East
- transferable model between China and developing countries in Southeast Asia and Latin America
- innovation environment
Technology development is always linked to market demand, says Lu, with mission-driven research start-ups like DeepMind and OpenAI emerging to address those issues. He advises offering help to entrepreneurs as they identify product/market matches and navigate issues during enterprises’ early grow stages.
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