roundup from our portfolios
The inside story behind the still-unfolding Evergrande default crisis is real estate itself, like Afghanistan a ‘grave of empires’, in this case commercial and policy empires.The regulatory brakes jammed on the sector’s debt may spare global markets but, if allowed to stand, could cut deep into the local economy.
The story here goes to ‘deep trouble’ at the level of state structure and its centre-local politics. The uneven impact of restrictions is hurting lower-tier cities and grassroot players the most: places like Yueyang in Hunan are rolling out price floors for established homes to prevent fire sales as some developers face a liquidity crunch. Stronger housing markets like Shenzhen keep rolling out measures to slow prices and reduce mortgage loads. At the macro policy level, future easing will be minor in amount, insists the central bank and targeted towards SMEs rather than flooding the market with currency.
More reform autonomy was granted to special cooperation zones in the GBA (Greater Bay Area): namely Hengqin-Macao and Qianhai-Hong Kong. Separate plans will boost regional economic integration of each, further blurring boundaries under the ‘one country, two systems’ rubric. Macao’s industries (read gambling) are to diversify; services trade with Hong Kong will be further liberalised.
Digitalisation as the coming growth engine of global trade was proclaimed, along with high-end digital services at the 2021 China International Services Trade Expo (Beijing, 2-7 September). August trade outcomes remained strong but outlook for Q4 faces more uncertainties in overseas demand. Staggering global shipping costs and persistent container shortages continue to pressure small exporters.
COVID-19 fallout has induced the first decline in state R&D expenditure in decades. Spending on basic research, that identified by Beijing as critical to future innovation, saw lacklustre growth, highlighting its struggle to prop up non-state buy-in. Business R&D is as strong as ever, with a new 15-year IP creation and protection strategy safeguarding their achievements. But the threat of big tech continues to haunt the sector despite Beijing’s claims that all measures against them are ‘law-based’, and assurance to Wall Street that it intends only ‘purity and warmth’ toward the private sector.
Correcting entertainment industry decadence, deemed a side-effect of ‘disorderly expansion’ of capital, has, under ‘common prosperity’, become the focus of official moral panic. Minors are to cold-turkey off their online games, while fan-fever is framed as another corruptor of their spiritual worlds. The cupidity and unruliness of fan culture, luring youth over legal limits, will be strictly controlled.
Down in the countryside, local tribunals get a green light to keep resolving conflicts and may be given greater enforcement powers, extending and consolidating state power at considerable expense.
‘Human rights’ was accorded a new (fourth) action plan on 10 Sep 2021. In tandem with ‘common prosperity’, ‘human rights’ works as an umbrella term, explaining new rules and criteria governing wide swathes of PRC society, not as a universal value. A 14th 5-year plan on jobs addresses youth unemployment, mitigating structural unemployment due to tech innovation, securing jobs in manufacturing and enhancing training.
More steps were taken to curb tutoring and competition between students in compulsory education. The bulk of year 1–9 schools built as public-private partnerships will become public and nonprofit within two years.
No new coal power projects are to commence abroad, Chairman Xi promised the UN General Assembly on 21 Sep 2021. China is the globe’s biggest funder of overseas coal projects. Already on the wane, PRC power firms will suffer short-term pain from Xi’s oath. Details remain cloudy; there will be follow texts. Guidance improving ecological protection compensation emerged on 13 Sep 2021. Compensating people (or firms, governments, etc.) for not harming the environment is mooted.
Long overshadowed in the pursuit of high yields, ag sector quality and green development are climbing the policy agenda. A first-ever 5-year plan on ag green development set benchmarks to evaluate progress, seeking breakthroughs by 2025. PRC cropland fell over six percent during 2009-19, but stayed above the ‘redline’ of 120 million ha. Arable land was lost, it was claimed, thanks to its conversion into forests, collateral damage of environmental regulation. Balancing demand for cropland with ecological protection will be a continuing challenge.
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‘rule of law’ 法治 fǎzhì
A principle in democratic jurisdictions that assumes the state itself is subject to law, ‘rule of law’ under the CCP assumes the Party, not the law, is the supreme authority. Hence it is misleading to use the English term ‘rule of law’ to render the Party term fǎzhì.
The recommended alternatives, ‘rule by law’ or ‘law-based governance’ are conveyed by the illustration: rules of Party discipline and punishment (the ‘disciplinary baseline’, the red line drawn on the ground) are backed by the hindmost book (labelled ‘law’). These texts are applicable to individual Party members, not the Party itself.
The 2nd 5-year plan to establish ‘law-based’ government appeared on 11 Aug 2021. Building on signature themes of Xi Jinping, it claims to add coherence to long-term state initiatives proclaiming a more predictable and credible policy environment. full post open access →
september policy movers
policy professionals in and out of the establishment
Wang Menghui 王蒙徽 | MoHURD (Ministry of Housing and Urban-Rural Development) minister
After decades of rhetoric, now is the time to make some housing affordable, argues Wang. Dampening speculation is a priority, but he offers a multi-pronged approach. Localities are warned not to turn to real estate for economic stimulus, but they should provide more affordable housing and rental properties. A range of affordable housing options will be offered targeting different urban groups: public rentals will be offered to low income groups with urban hukou, while affordable rentals are offered to migrants and recent graduates. Rural housing policy will focus on renovating existing homes. Wang worked in Guangdong in the 1990’s, rising to Party secretary of Yunfu city before transferring to nearby Fujian in 2011. He later became mayor and Party secretary of Shenyang (Liaoning), and has headed MoHURD since 2017.
Dong Yang 董扬 | China Automobile Semiconductor Industry Innovation Strategic Alliance director
The auto industry is facing unprecedented changes in 2021, says Dong, noting that manufacturing technologies, consumption patterns, supply chain bottlenecks and market trends are all reshaping the all-important sector. Auto parts made in China will be much more prominent at the high-end of the market within a few years, he says, by which time China will have become the world’s largest base for the chip supply chain. Established in late 2020, the alliance he oversees has bridged the communication gap between chip- and auto-makers, encouraged the development of a domestic chip ecosystem and set up chip application insurance schemes to reduce the risk of using domestically-made parts. Dong was previously the secretary general of the powerful China Association of Automobile Manufacturers.
Wang Guanghua 王广华 | MNR (Ministry of Natural Resources)
Expert in supervising land use and registration, Wang built his career in the former Ministry of Land and Resources, and now heads the national land survey. Cracking down on ‘non-ag’ and ‘non-grain’ use of farmland, he insists, will be a long-term MNR priority. The ministry has already publicised cases of illegal occupation of farmland. Localities are urged to prepare for a thorough probe into farmland protection. Local land planning backs up the national land use strategy, imposing redlines for protecting arable land and curbing urban development, says Wang. A reform in 2019 assigned urban planning rights to provincial governments, with the central government reviewing plans that impinge on redlines.
policy ticker highlights
gems from our feed of policy releases and domestic debate
Jiemian | 5 September
context: The move to limit PBoC’s lender of last resort commitment may foreshadow the undercurrent of dangerously high aggregate debt obligations. The moral hazard risk in the PRC context is more of a problem stemming from the lack of central bank independence, allowing financial decisions to be ‘hijacked’ by political incentives, rather than one of market-driven mal-investment.
context: Global vaccine cooperation and exporting PRC vaccines have become trade selling points in recent multilateral meetings, as Beijing’s vaccine diplomacy with developing countries grew over the past year. Given fading overseas demand for manufactured goods and COVID-related medical equipment, increasing exports of high-end and value-added services will help sustain longer-term trade growth.
science and innovation
context: Efforts to domesticate big tech continue. Apart from official signals, there are signs that Beijing is getting board seats at some of the internet giants as part of the efforts to assert control. Didi specifically rejected claims that the Beijing municipal government is taking a controlling stake of the firm.
context: Under the goal of common prosperity, those in the entertainment industry with abnormally high incomes are becoming the target of rectification, ostensibly to prevent the disorderly expansion of the capital backing them. At the same time, fans’ blind worship of stars affects the normal lives of fans, and their stars’ obsessive pursuit of money and good looks also influences the worldview and social atmosphere surrounding fans, especially those who are younger and more impressionable. In the current context of ‘double restrictions’, some reasonable corrective to online time might be needed.
Weixin | 30 August
context: The decision-making of centralised procurement is largely predictable. At a national level, expensive but highly consumed products are favoured candidates; at the local level, various products can be tried out on a smaller scale. Understanding what will be centrally procured next and how they will be procured helps stakeholders mitigate the risks.
energy and environment
Caixin | 13 September
context: These innovative mechanisms aim to factor in elements leading to environmental degradation across the country. Examples of ecological compensation mechanisms already exist in the Yangtze River basin, but will be trialled elsewhere.
Ministry of Agriculture | 7 September
context: The first-ever plan on ag green development sets out concrete targets to balance food production and minimise negative impacts on the ecosystem.
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