roundup from our portfolios

Multilateralism was again lauded at the Boao Forum by Chairman Xi, who warned against ‘a narrow group’ of countries setting the global order. Wang Yi 王毅 foreign minister rubbed elbows with Middle East counterparts, and ASEAN foreign ministers nearer home. Beijing’s diplomacy focuses on LDCs, claims domestic media, while ‘the West’ sinks deeper into its ‘Cold War mentality’. Trade is booming: Q1 y-o-y surplus expanded sevenfold to some 760 bn. Headwinds, however, from commodity prices and other countries’ factories returning to work, are mounting. Eager to play down fears among international business of Beijing’s hostility, market restrictions were eased, and global finance firms urged to locate in Hainan Free Trade Port.

At the virtual US-led climate summit 22 April, Xi pledged not to expand coal-fired power, and to phase down coal consumption during the 15th 5-year plan (2026-30). While PRC experts press for capping coal-fired power, this was the first time a clear message came from the top. It followed a Shanghai meeting between climate envoy Xie Zhenhua and his US counterpart John Kerry. They issued a joint statement addressing the climate crisis.

Mobilising the public ahead of the Party centenary, is called for by the Central Committee. The show, climaxing in June, will celebrate Xi-led success, dismissing historical nihilism on the other side of the ledger. Yet more injunctions were issued boosting patriotic education of college students and Party leadership over campus and student affairs. This echoes Xi’s demand at a 19 April tour of Tsinghua University that higher education cherish ‘patriotic imperatives’ (see cp.lexicon below).

With economic growth a comfortable 18 percent y-o-y, and a mean growth rate of 5 percent in the last two years compensating for COVID-19, tackling debt tops the policy agenda. Allowing LGFVs (local government finance vehicles) to go bankrupt was cited in budget management measures, raising eyebrows. It followed a late March call for curbing local SOE debt that also urged bankruptcy as a way out. With Beijing readjusting monetary policy, defaults and bankruptcies will be allowed—within limits short of risking financial panic.

With manufacturing rated above services in the 14th 5-year plan, sector-specific initiatives are underway. Fiscal support is pledged, starting with low-hanging fruit of R&D-related tax incentives. Competition law rigour, needed to stimulate the market, is now in full force: a probe has been launched into food delivery giant Meituan, with legal precedent set in the historic Alibaba case.

The pharma industry faces this rigour: forcing pharmacies to keep prices up has landed companies with serious fines. With hints that filling prescription online will become legal. drug prices might see a slide. Fretful pharmacies lobbied for inclusion of profitable concessions in Basic Medical Insurance personal account reforms.

Serious progress in ag and rural modernisation is imminent, says MARA, with better production structures and regional layouts, as well as more secure supplies. Echoing existing policy measures, amendments now proposed for the Rural Revitalisation Promotion Law offer stronger protection of farmland.

reintroducing cp.lexicon, in case you have not seen it on our site

patriotic imperatives 国之大者 guózhīdàzhě

ancient buzz-phrase linking traditional with modern power
ancient buzz-phrase linking traditional with modern power

First noted in Xi Jinping’s April 2020 tour of Shaanxi, the expression is now a buzz-phrase permeating political discourse. It is value-laden, encapsulating a wide range of desiderata including bold, large scale projects i.e. poverty alleviation or high-quality development, but also the notion of fealty due to the Party with Xi at its core. Those ‘cherishing “patriotic imperatives”’ are politically acute, their vision trained on the current state of affairs. Using classical syntax, the expression draws on knight-errant novels by Jin Yong 金庸 (1924–2018), where it connotes chivalrous self-sacrifice.


featured analysis

over 2,000 coal-fired power plant operators are covered by the national carbon market
over 2,000 coal-fired power plant operators are covered by the national carbon market

China’s carbon market: easy does it

Fast-tracked in late 2020, a PRC carbon market is hastened by Beijing’s pledge to peak emissions before 2030 and reach neutrality by 2060, both deemed imperative to fulfill its Paris Agreement obligations. Trading is expected to start by end June. full post open access →

april policy movers

policy professionals in and out of the establishment

Yu Hongjun 于洪君 | Chinese People’s Association for Peace and Disarmament vice president, former ambassador to Uzbekistan

Economic reconstruction in Afghanistan, which shares a 76 km border with the PRC, will be tough, warns Yu. Fragmented local power is a primary challenge, though not the only one, as the Taliban and the Ghani administration strive for coalition government. He urges the international community to increase aid, stressing use of the BRI framework and multilateral banks to build infrastructure. Even now, China and Afghanistan trade on too small a scale, which will not change soon. Foreign affairs veteran Yu worked in several Middle East embassies, and as vice minister of the CCP Central Committee’s International Department.

Li Xinchuang 李新创 | China Metallurgical Industry Planning and Research Institute vice director

Steel firms hesitate to wade into carbon markets, says Li, lacking expertise in compliance and trading rules. Carbon data calculations are dogged by lengthy manufacturing processes, complex techniques and numerous emission points. Setting rules for the sector will take time. Scaling up hydrogen use in steel smelting is, he adds, crucial for the sector’s low-carbon transition but is not yet feasible due to lack of renewable-based production, high hydrogen manufacturing costs and immature technologies.

Cai Fang 蔡昉 | People’s Bank of China Monetary Policy Committee member

Recently appointed to the PBoC Monetary Policy Committee, Cai is deeply versed in the economics of employment and ageing and their implications. The PRC, he argues, got ‘old before wealthy’, its comparative advantage shifting from ‘demographic dividend’ to its relatively complete value chain. Strongly in favour of winding up the hukou system, Cai has for the past two decades (mostly spent in the Chinese Academy of Social Sciences) explained that making workers more mobile is essential to avoiding the middle income trap.

policy ticker highlights

gems from our feed of policy releases and domestic debate

trade policy

relating national rejuvenation to foreign relations

Weixin | 14 April

context: Before the pandemic, experts commented on China’s strategic opportunity for development facing an increasingly hostile US. COVID-19 has accelerated splits between China and the US/EU. Domestically, success in containing COVID-19 has led to increased confidence on the international stage.

He Yiting 何毅亭 former Central Party School executive vice president commented on the goal of national rejuvenation led by the party and the strategic period during what he calls ‘the power shift from west to east’

  • as a great power, China needs to be influential on the ideological front and in international discourse and to assume a great power’s responsibilities, in addition to socio-economic development
  • tech revolution is the fundamental driving force of major change
    • as international power shifts, the restructuring of the global governance system and the world order follow
    • COVID-19 has only accelerated the process
  • the overall trend of prosperity and stability in the Asia-Pacific region will not change, but uncertainty is rising due to changes amidst great powers
  • strategic competition and the reorganisation of relations between the major powers are intense and complex
    • the US suffers from the ‘Trump shock’, the pandemic, intensifying racial conflicts and the widening gap between rich and poor
    • the EU has been hit by the debt crisis, the large-scale refugee influx, terrorism and the pandemic
  • these great changes are opportunities for China
    • China should accelerate catching up with the world’s scientific and technological frontiers and high-end countries in the industrial chain
    • strive to achieve the ambitious goal of being at the forefront of innovative countries by 2035 and becoming a world power in science and technology by 2050
  • the US–China relationship is the most important factor affecting the development and security of China
    • the focus should be on cooperation, managing differences and maintaining stability


mobilising the masses ahead of the Party’s centenary

People’s Daily | 11 April

context: Wang Huning 王沪宁 called for more Party control over propaganda ahead of CCP’s centenary. A CCP Central press conference outlined Party centenary activities on 23 Mar 2021. It is noticeable that achievements in Xi Jinping’s era are prioritised.

CCP Central Committee issued ‘Notice on always following the Party’s education and publicity activities’, as part of Party centenary celebrations. The notice stresses

  • buttressing Xi Jinping’s position as the core
  • defining the activities’ procedures
    • until May: publicising recent achievements, including
      • the 5th Plenum
      • the 13th 5-year plan
      • poverty alleviation
      • provisions of the 14th 5-year plan
    • June-July:
      • climax of activities
      • spreading Xi’s speech on the Party centenary after its delivery
      • announcing that building a ‘moderately prosperous society in all aspects’ was successful
  • clarifying educational activities
    • raising people’s activeness and devotion ahead of their mission
    • taking the oath of Party membership at Party memorial sites
    • publishing special articles across the media
    • organising testimonies
    • setting up special trips for displaying
      • Party history
      • poverty alleviation
    • strengthening youth education, including
      • Party history education
      • loyalty education
      • achievements in the New Era
    • civil celebrations


deepening local government budgetary management reforms

State Council, East Money | 15 April

context: Combating local debt was a priority set out at the Central Economic Work Conference in December 2020 and at the March 2021 Two Sessions. The macro-leverage rate’s increase in 2020 due to the COVID-19 stimulus caused further concerns.

State Council issued ‘Opinions on deepening budget management system reforms’, specifying

  • general requirements
    • guiding thought
    • basic principles
      • upholding Party leadership
      • strengthening the legal framework
      • adopting goal-oriented methods
      • maintaining baseline thinking
  • increasing budget revenue coordination to enhance financial security
  • standardising budgetary expenditure management and fiscal expenditure
  • implementing strict budget preparation and management to enhance budget integrity
  • strengthen budget implementation and performance management to enhance its binding effect
  • strengthening risk prevention and control to enhance fiscal sustainability
    • allowing LGFVs (local government financing vehicles) to go into bankruptcy to clear up debt
  • enhancing fiscal transparency and improving the level of budgetary digital management

Drawing market attention was the inclusion of LGFV bankruptcy. While not a new idea, it had been discussed in official documents as early as 2018, according to Mao Jie 毛捷 University of International Business and Economics professor, with recent debt defaults putting the spotlight back on local government debt issues. The long-term goal is to strip off the government financing function of LGFVs and resolve debts through marketisation and rule of law, explains Luo Zhiheng 罗志恒 Yuekai Securities Research Institute. LGFV bankruptcy has been rare, notes Wen Laicheng 温来成 Central University of Finance and Economics, adding that LGFVs normally just go through mergers or reorganisation without declaring bankruptcy. According to a CICC research report, by end 2018, the interest-bearing liabilities of local financing platforms exceeded 30 trillion, 34 percent of GDP. In addition, their cash flow to current debt obligation ratio was is only 0.4.


Rural Revitalisation Promotion Law in third review

Farmers’ Daily | 26 April

context: Finalising this law is key to building the policy framework for rural revitalisation. Echoing existing policy measures, the newly proposed changes show stronger protection of farmland and emphasis on food security, and cover more cultural, social and environment topics.

The newest draft of the Rural Revitalisation Promotion Law is being reviewed for the third time, says Zang Tiewei 臧铁伟 NPC Standing Committee Legislative Affairs Committee speaker, reports Farmer Daily. The following new changes are proposed based on comments collected from the previous public consultation

  • further stressing food security
    • preventing non-farm use of farmland
    • securing seed security
  • highlighting rural cultural revitalisation and adding harvest festival regulations
  • improving support for rural industry development
  • improving rural human resources development
    • policy incentives to encourage education and medical professionals to serve rural areas
    • training talent in tech, management, legal services and social work
    • improving skills training, vocational and continuing education
    • adding more ag-related subjects in schools
    • building a cross-regional collaborative talent cultivation system
  • improving consolidation of poverty alleviation results
  • completing support for rural-urban integration
    • forbidding de-designation and combination of villages against farmers’ will

Zang elaborates on the following measures for strengthening farmers’ rights

  • securing individual members’ right to receive distributed profits from collective operations
  • improving village self-rule via village committee
  • improving the urban-rural integrated social security system
  • ensuring basic pension increases along with societal development
  • strengthening care for women, elderly, left-behind children and children in need
  • securing rural migrants’ rights in urban areas
  • forbidding illegal construction on and use of farmland


pharma anti-monopoly moves from APIs to marketed drugs

21st Century Business Herald | 17 April

context: Hefty anti-monopoly fines in the pharma industry have mostly been issued for APIs until now. But this new move shows the state will not cease to curb anti-competitive practices that jack up drug prices, no matter whether in production, as in the case of API drugs, or in distribution.

Yangtze River Pharmaceutical Group has been fined 764 million, three percent of its annual sales in 2018, for violating Anti-Monopoly Law, announced SAMR (State Administration for Market Regulation) on 15 Apr 2021, reports 21st Century Business Herald. Not only is this the first case of anti-monopoly legal action against finished drug products or Traditional Chinese Medicine, but it is also the highest fine issued to a single corporation for vertical monopoly or resale price maintenance.

The group sells over 300 drugs and had been making binding monopoly agreements with its downstream distributors to strictly control the price of each drug from 2015 to 2019. To keep prices high, distributors offering low prices were punished and third-party agencies were hired to monitor drug prices online. As one of the leading pharma enterprises with considerable market dominance, its distributors have limited negotiating power. Increasing sale prices can also serve to set the bidding prices high in centralised procurement, a common practice in the industry, says Liu Xu 刘旭 Tsinghua University National Strategy Institution researcher.

Fines for monopoly in the pharma industry have become increasingly higher but this case is especially significant as it shows anti-monopoly regulatory actions are moving beyond APIs (Active Pharmaceutical Ingredients) towards finished drug products. Liu thinks monopolistic behaviours will not stop unless profits obtained through such actions are confiscated, making fines higher than profits.

Drug prices are central to people’s livelihood and reducing medical burdens, and the enforcement of Anti-Monopoly Law will continue to be strengthened to protect fair competition and consumer rights, says SAMR.

energy and environment

international climate change cooperation boosted

21st Century Business Herald | 21 April

context: Cooperation on addressing climate change is shaping up as valuable ballast for the US–China bilateral relationship that is increasingly wedged as the two nations’ trajectories and values diverge. As the world’s largest producer of HFCs, China ratifying the Kigali Amendment and phasing out these chemicals is a step towards a safer climate.

President Xi Jinping participated in an online summit with French President Emmanuel Macron and German Chancellor Angela Merkel on 16 April.

Among other matters, Xi announced that China will officially become party to the Kigali Amendment to the Montreal Protocol, which bans the use of HFCs (hydrofluorocarbons) – a type of greenhouse gas.

According to Wang Jinnan 王金南 China Academy of Environmental Planning director, China, France and Germany can strengthen cooperation on

  • energy transition
  • renewable energy
  • microgrid technology
  • hydrogen energy technology in aviation
  • carbon markets

Xie Zhenhua 解振华 China special climate envoy met with John Kerry US special climate envoy in Shanghai on 15-16 April, where they issued the ‘US–China joint statement addressing the climate crisis’. According to the joint statement, the two nations will continue discussing concrete emissions reductions measures for the 2020s.

Decarbonising energy-intensive industries will be more difficult for China than the US given the larger scale of these industries in China, commented Lin Boqiang 林伯强 Xiamen University China Institute for Studies in Energy Policy chief.

The carbon border adjustment mechanism promoted by the EU demands close attention, says Zhang Haibin 张海滨 Peking University School of International Studies deputy director. A unilateral action taken by the EU, this will have negative impact on international trade, adds Zhang.

As for the Chinese carbon market, Zhang commented that

  • carbon prices must be maintained at a rational level
  • quotas must be distributed well to prevent the market signal failing

science and innovation

domestic smart manufacturing equipment to replace imports

Ministry of Industry and Information Technology, 21st Century Business Herald | 14 April

context: Smart manufacturing has been a major policy agenda item for years even as Made in China 2025 was officially ushered into the background. However, import substitution targets are now outlined in the 14th 5-year plan.

China’s smart manufacturing equipment and industrial software are to satisfy 70 percent and 50 percent of domestic demand respectively by 2025, stipulates the draft 14th 5-year plan for smart manufacturing issued by MIIT (Ministry of Industry and IT). Other quantitative targets for industrial upgrading, equipment supply capacity, public service platforms, and standard development are also outlined in the plan. For instance, the call is issued for the business income of at least ten systemic solution providers to exceed 5 billion.

China’s manufacturing sector lags behind foreign countries in digitisation and automation, notes Zuo Shiquan 左世全 MIIT official, and thus the plan aims to bring the sector up to speed by 2025 and foster smart technology adoption among major industrial enterprises by 2035. While the sector made significant progress in the last five years, says Zuo, an ageing population, carbon neutrality goals and great power competition mean that smart manufacturing is more important than ever.

Manufacturers should actively look for value-adding application scenarios rather than adopting technologies in vogue, notes Zhu Hongren 朱宏任 MIIT former chief engineer. However, SMEs face budget constraints, adds Wang Jian 王健 China Science and Technology Automation Alliance secretary general.

The Ministry pledges to offer fiscal and training support, as well as public service platforms.

Import substitution and developing breakthroughs in core technologies and applications are top priority. Industrial robots, high-end machine tools and industrial software are still dominated by foreign brands, notes 21st Century Business Herald. Other tasks include

  • promoting applications and opening up new paths for transformation and upgrading
    • smart factory demos
      • 2,000 application scenarios by 2025
      • 1,000 workshops by 2025
      • 100 demo factories by 2025
      • 100 supply chains by 2025
    • industry digitisation: drastic improvement by 2025
      • equipment manufacturing
      • electronics and information
      • raw materials
      • consumer goods
    • regional coordination
  • domestic supply chain development
    • smart manufacturing equipment: 1,000 developed by 2025
      • basic components and equipment
      • common, specialised and novel smart manufacturing equipment
    • industrial software: a number of breakthroughs by 2025
      • R&D and designs
      • production management
      • business management
      • control and operation
      • special industries
      • novel applications
    • systemic solutions
  • basic support
    • standardisation
      • ecosystem design
      • development: 200 developed or amended by 2025
      • promotion: 100 pilots selected by 2025
    • information infrastructure
    • safety and security

Localities are urged to set up their own implementation plans.

China Policy is a Beijing-based research and advisory company. Supporting our clients at multiple levels, from in-house research teams to CEOs and boards, we help them anticipate, understand and respond to China’s changing domestic policy and geopolitical environment. Contact us for more information on our services.