roundup from our portfolios
An ideological guide, indeed a manifesto for the Party’s second century, was delivered in Xi Jinping’s hour-long address to the CCP centenary. So Xi’s intellectual consiglieri Wang Huning 王沪宁 told an ideology class. On notice to mobilise ‘the masses’, the education-cum-propaganda system is mining the framework sketched in the speech. Party members are all required to study, interpret, and carry it out.
Bringing IT giants to heel has been swifter and wider than anticipated. Only Tencent has—for now—survived the reversal of ‘pure and warm’ state-market relations pledged at the 19th National Party Congress in 2017. Backlash focused on Didi Chuxing for its ill-advised overseas IPO (cyber and securities regulators also took a hit for failing to delay the launch). Data security, implicit in Didi’s massive trove of data, ranks as Beijing’s key concern; scrambling to restore authority, regulators have been dialing up oversight to maximum in this space above all.
The labour rights of delivery drivers (poorly paid, on precarious contracts) are of mounting concern too, scrutiny of them harming food delivery firms, not least Meituan. The chill these hurdles and insecurities may cast over foreign investing in startups appears outweighed by new political risks. This was underlined in other channels, e.g. a ban on for-profit K-9 tutoring companies.
The private tutoring industry will now reposition towards ‘interest-based’ curricula, notably arts and sports, as well as adult vocational ed. The industry was also on notice for threatening Beijing’s new pro-natalist imperative. As its wings were being clipped, welfare penalties for families with three children were removed. A package of measures will further support IVF and assisted reproduction, maternal and infant care, early childhood services, and aged care.
Growth in Q2 stumbled, slipping below 8 percent y-o-y. Headwinds are taking the form of high industrial input prices, weakening exports, and underperforming consumption; the economy is expected to slow further throughout the year. To get ahead of the curve and support struggling SMEs, the PBoC cut the reserve requirement. Long-term changes are mooted in a spate of measures to improve capital market intermediaries and processes, and a helping hand for affordable rental housing. These are hoped to rebalance capital flows away from already bloated industries.
The national carbon market, comprising over 2,000 power generation firms, began trading on 16 July. Coming after years of preparation, this marked a milestone in the campaign to reduce emissions as pledged to the UN by Chairman Xi. Prices began at C¥48 per tonne, but had risen to some C¥57 by 23 July—evidence, claimed domestic analysts, of confidence in the market. Emerging in July, a 5-year plan for the ‘circular’ economy envisages it creating value to the tune of C¥5 tn by 2025.
Trade performance outpaced market expectations in June: exports stayed up despite shipping backlogs and rising commodity prices. Yet exports are predicted to slow in H2 2021, given their high base. Diversifying trade structures and lobbying developed countries to relax anti-PRC export controls are high on the agenda of the 14th 5-year commerce plan. Current reform initiatives appoint Pudong, Shanghai, the ‘centre’ for tech innovation and capital account liberalisation. Hainan has issued a long-awaited services trade negative list.
As small producers shy away from ag insurance incentives, better access to financial tools and credit guarantees boosting rural risk-sharing are touted to help agribusiness and low-income residents. A seed industry revitalisation plan further promotes R&D and commercialising research. Approval of GM (genetically modified) crops, not least corn and soybean, is expected. Professional ag services are gaining favour as a channel to bring new tech and equipment to small farmers.
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huddle for warmth 抱团取暖 bàotuán qǔnuǎn
Firms forced to merge in the wake of the 2008 financial crisis were said to ‘huddle together’ against bankruptcy. Resurfacing in late 2020-early 2021, the meme now spotlights weak, local small and medium banks. Localities urge unity in their banding to ward off solitary collapse. Partners should be chosen carefully, experts are quick to warn, to keep risk dispersed and governance prudent.
Rising global prices of agricultural and industrial inputs are disturbing Beijing. For all its invoking of self-reliance, China’s economy will remain dependent on a range of low- and high-tech imports, even to meet domestic demand. Long-term solutions are sought from overseas investment, particularly for low-end commodities, though timelines are long, costs and risks high, and success far from assured. full post open access →
july policy movers
policy professionals in and out of the establishment
Yuan Jiajun 袁家军 | Zhejiang Party secretary
Yuan proclaimed the superiority of the PRC’s ‘common prosperity’ to ‘Western’ welfare at a Zhejiang Party committee meeting on 10 June 2021. It is not absolute egalitarianism, he insisted, nor ‘killing the rich to help the poor’ (as often said of post-1949 land reform). Revisiting the social justice debate of the Hu Jintao era (2002–12), Yuan places faith in high-level development to deliver equity ‘in the long run’ (not unlike trickle-down economics). Starting as a technocrat trained in aerospace engineering, Yuan was appointed Zhejiang Party secretary in 2020, where a ‘common prosperity’ pilot launched by the Party centre in June 2021 runs under his direction.
Didi Chuxing 滴滴出行
Dominating the ride-hailing market, Didi’s contribution to the PRC economy is not universally appreciated, and it now faces hostile probes. Under scrutiny are its records on safety, cybersecurity, pricing and labour disputes. A heavier blow is coming on the antitrust front: a controversial 2016 merger with Uber China, yielding Didi monopoly power in ride-hailing, never gained the approval of antitrust authorities. Expanding into community group-buying, at the expense of ma-and-pa grocery shops, placed another bullseye on Didi’s back.
Teng Tai 滕泰 | Wang Institute of New Economics dean
Prices—high for producers and low for consumers—are strangling SMEs, warns Teng, much-touted ‘father’ of supply-side structural reform. Meanwhile, SOEs’ monopoly hold over many upstream industries means their profits skyrocket, while private firms and downstream SMEs scrape by, absorbing rising costs and losing competitiveness and R&D capacity. This may ultimately lead to long-term stagnation of incomes. To survive in this new scenario, firms must redouble efforts to provide new services and increase branding.
policy ticker highlights
gems from our feed of policy releases and domestic debate
Pudong appointed the leading zone for tech and innovation
context: Home to leading tech firms, financial corporations and MNC headquarters, Pudong is Shanghai’s core financial and business centre and one of the PRC’s resource intensive areas. With no signs of the tech and finance war with the US cooling down under the Biden administration, Pudong is afforded a new mission as the pivot for domestic and international economic circulation, circumventing uncertanties that still linger over Hong Kong.
Another reform experimentation zone has been appointed. The document, ‘Opinions on supporting high-quality reform and opening-up of Pudong New Area as the leading zone for socialist modernisation’, was jointly released by CCP Central Committee and State Council on 15 Jul 2021, specifying
- strategic importance of the Pudong New Area for
- expanding domestic consumption
- governance modernisation
- global resource allocation with service industry as the core
- exploring higher quality reform and opening up
- a comprehensively modernised economic mechanism by 2035, including
- modernised urban governance and urban district
- world-class competition capability
- strong global competitiveness, attractivity, and influence by 2050
- a comprehensively modernised economic mechanism by 2035, including
Key areas of reform include
- high-quality opening up
- further pilot Shanghai Pilot Free Zone Lingang special area
- constructing global transportation pivot
- attracting global talent
- further increasing financial opening-up
- promoting innovation
- key scitech R&D
- integrated circuits
- life sciences
- world-class industry clusters
- improving scitech and innovation environment
- channeling financial resources to innovation
- key scitech R&D
- reforming governance
- streamlining administration
- creating fair business environment
- improving land utilisation, energy consumption and data trading
- improving urban modernisation
- expanding domestic consumption
- security and risk prevention, above all preventing
- financial risks
- public health risks
- risks in production processes
A highlight is the financial market opening policy mentioned in the Opinions, notes Zhao Yongchao 赵永超 Hualuo Think Tank Financial Research Institute dean. Pudong will continue to leverage its advantage as Shanghai’s financial hub, attracting international capital inflows. Moving on, Pudong may become an important frontier for exporting the Chinese model, Zhao argues.
Xi Jinping’s speech as the Party’s guidance for the next hundred years
People’s Daily | 2 July
context: In his speech at the Party’s centenary ceremony, Xi Jinping proclaimed the first centenary goals of the Party on entering its new development era. The Party is mobilised to keep in line with Xi’s speech.
Xi Jinping’s speech at the CCP’s centenary ceremony is a Party manifesto providing ideological guidance for the next hundred-year journey, stated Wang Huning 王沪宁, Central Committee Standing Member, at an ideological session studying the Party’s centenary. He also called on propaganda and ideology workers to
- unify ideologies towards the principle of the speech
- uphold the ‘four-four-two’ policy
- explain the political responsibilities outlined in the speech
- guide the masses in accordance with Xi’s speech
Two hundred and twenty cadres taking charge of propaganda and ideology work participated in this session.
State Council policy to ease housing difficulties
Jiemian | 2 July
context: China’s lucrative housing market is now too big to fail. High housing prices have become a major obstacle to continuing urbanisation as it is extremely expensive to find a place in major cities. As it becomes increasing difficult to live in big cities, people are either ‘fleeing’ cities or delaying other important life decisions like having children.
State Council’s opinion on accelerating affordable rental housing development pledged support for affordable rental housing development with preferential land policies, fast-track approval, subsidies, tax and fee reduction, and financial support.
The appearance of the expression, ‘encouraging diversified investors and supply channels’, in high-level policy documents means the state hopes to encourage investment using market forces, points out Yan Yuejin 严跃进 E-housing China Research Institute.
Li Yujia 李宇嘉 Guangdong Housing Policy Research Centre says the document emphasises the mobilisation of low-cost land resources, such as idle land, to justify low rents. Despite that, Li maintains there are still obstacles to rental market development.
Real estate companies still want to develop commercial housing rather than rentals. The required water, power and gas upgrades, as well as fire safety inspections, will all require cooperation with various government agencies. Meanwhile, adds Li, the profitability of the rental market remains questionable. For all these reasons, private companies are not enthusiastic about participating. SOEs could take the lead, but that is still questionable, argues Li.
Apart from policy support, State Council is also granting companies providing rental housing a 1.5 percent value-added tax rebate and a 4 percent real estate tax rebate.
revitalising the seed industry
context: Another round of supportive policies was initiated to revitalise the domestic seed industry. Stressing biotechnology, regulators released positive signals for the commercialisation of GM crops, which have seen relaxed regulations since 2019. Forerunners are waiting for opportunities to leverage their R&D capacity in GM crop breeding.
Passed at the meeting of CCDRC (Central Comprehensively Deepening Reforms Commission) on 9 Jul 2021, the seed industry revitalisation plan calls for a stronger domestic seed sector, and stresses
- strengthening germplasm resources protection and boosting seed R&D
- pushing breeding R&D forward with a particular focus on biotechs
- continuing the germplasm census
- supporting seed companies and commercial breeding
- enhancing seed IP protection
- bridging gaps between private companies and research institutions
- accelerating the construction of the Nanfan breeding base
Enhancing seed IP protection as an essential part of seed industry revitalisation has already been in progress. A seed IP protection campaign was launched by MARA (Ministry of Agriculture and Rural Affairs) on 2 July, to create a fair environment for seed innovations by
- amending the Seed Law and the ‘New plant variety protection regulations’ incorporating the 2021 judicial interpretation released by SPC (Supreme People’s Court)
- raising the threshold of plant variety approvals and de-registering illegal varieties
- tightening investigations of violations of plant variety rights, distribution of fake seeds, and the production and distribution of unauthorised GM seeds
As state is gradually loosening its strict controls on biosafety certificates for GM crops (notably soybeans and corn) since 2019, further policies to accelerate the commercialistion of GM crops are to be expected.
debating secondary voc ed’s future
context: Secondary voc ed enrolment has been declining over the past decade, as voc ed is seen as inferior to academic high school education. Debates on how to manage secondary voc ed continue and experts are divided on its future.
In April, MoE (Ministry of Education) ordered the expansion of secondary vocational education admission to the level of high schools admission. Voc ed remains the last resort for students with low grades despite the state’s increasing emphasis. The low status and inconsistent quality of voc ed led to the debate on whether secondary voc ed should be replaced by universal high school education.
Making voc ed schools another pathway to attending good universities will allow voc ed schools to recruit better students, and should be the future orientation of secondary voc ed, argues Jin Weidong 金卫东 Hangzhou Renmin Vocational School headmaster. In Zhejiang, the “3+4” joint voc-ed and undergraduate degree program has been successful in attracting academically strong students because it secures a place in good universities and better job prospects.
However, the “3+4” programs can become too exam-oriented when fulfilling the connecting universities’ requirements, reports Sanlian Lifeweek. As vocational universities and tertiary vocational education are expanded, MoE ordered the suspension of “3+4” programs.
Others argue that voc ed should not be simply a stepping stone to universities. Many voc ed graduates pursue college degrees for the fear of social prejudices, leading to low quality of training and credential inflation in the job market, argues Xiong Bingqi 熊丙奇 president of 21st Century Education Research in Huanqiu. Vocational education should be entirely skill-oriented, and separating the academic and vocational education tracks once basic education is completed is more efficient for building a highly skilled labour force, says Xiong.
energy and environment
steel industry draft carbon peaking plan complete
context: Steel production lies at a critical juncture: high demand from construction and industrialisation is unlikely to abate given the government’s economic priorities, yet addressing the industry’s severe environmental footprint is also necessary to achieve national carbon pledges. Steel prices will rise as repeated instructions from authorities to limit steel production are eventually enacted.
A draft carbon peaking action plan for the steel industry, responsible for 15 percent of the nation’s carbon emissions, has been drawn up, as announced by China Iron and Steel Association on 17 Jul 2021. The plan, as yet unreleased, details that emissions reductions will mainly be achieved by
- directly reducing output
- phasing out old units
- clearing overcapacity
- optimising processing
- increasing proportion of steel produced in electric furnaces
- currently only 10 percent of domestic steel is from electric furnaces, far less than the 30 and 40 percent proportions of Japan and the EU respectively
- increasing proportion of steel produced in electric furnaces
- increasing the proportion of short-process steelmaking (using scrap steel inputs)
- increasing market concentration
Details of the plan have not been released, but insiders predict that it will aim to
- achieve carbon peaking by 2025
- reduce emissions by 30 percent by 2030
- achieve significant emissions reductions by 2035
- achieve complete decarbonisation by 2060
Since December 2020, MIIT (Ministry of Industry and Information Technology) and NDRC (National Development and Reform Commission) have been calling for steel production to decline y-o-y in 2021. However, high demand has led to an 11.8 percent y-o-y increase in steel production in the first half of 2021, making the task of reducing capacity all the more difficult, according to Zhao Penggao 赵鹏高 NDRC Resource Conservation and Environmental Protection Office deputy chief. The government may impose stronger measures in 2021 to reduce capacity, he warned.
Many of the steel industry’s environmental problems arise from low market concentration, says Li Xinchuang 李新创 Metallurgical Industry Planning and Research Institute chief engineer. Mergers and reorganisations are likely, he added. NDRC will encourage these structural adjustments and introduce strict rules to ban capacity increases, commented Zhao.
science and innovation
Didi provoked Beijing’s fury: seven agencies investigate
context: Didi’s unexpected and unwanted IPO infuriated Beijing; failing to stop it, national security and financial agencies have reportedly lost face. The involvement of MSS, as well as the actions from relevant regulators, suggests Beijing is trying to assert its authority.
- cybersecurity review: seven agencies, including CAC (Cyberspace Administration of China), MPS (Ministry of Public Security) and MSS (Ministry of State Security), dispatched officials to DiDi on 16 Jul 2021 to conduct the cybersecurity review ordered by CAC on 2 July
- CAC is also revising the rules on cybersecurity review to confirm its role in regulating overseas listings
- privacy regulations: 25 DiDi apps, including its primary app, were removed from mobile app stores on 4 July for ‘severely violating relevant laws and regulations when collecting and utilising personal information’
- anti-trust: DiDI was fined C¥4 million by SAMR (State Administration for Market Regulation) for failing to file its M&As
Cybersecurity reviews were designed to ‘deter’ perceived threats to national security and are not to be invoked casually, says Zuo Xiaodong 左晓栋 China Information Security Research Centre deputy head who helped draft multiple cybersecurity regulations. Public security authorities have a list, notes Zuo, of firms and facilities well deserving of cybersecurity review; ultra-large internet platforms will likely come under scrutiny. DiDi was aware that it falls under the scope of the cybersecurity review regulations, insiders told Caixin. Yet the firm claims it was unaware of the review up to the IPO.
DiDi had long been in the regulators’ bad books prior to its devious IPO, reports Caixin. Securities regulators ‘already blocked its planned Hong Kong IPO in 2020’. It remains plagued by compliance issues, remaining sceptical in early 2021 when Beijing attempted to domesticate the big tech sector. When DiDi filed for its New York prospectus, regulators ordered DiDi to conduct a data security review before listing overseas but fell short of objecting to the IPO.
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