roundup from our portfolios

As Xi Jinping’s assured progress to a third term looms in 2022, the long arm of the Central Commission for Discipline and Inspection is leaving no stone unturned. These Party watchmen have Xi’s back, alert to any threat to his accession. Hence leadership confidence in domestic control is high, proclaimed a late 2021 Politburo meeting; the top team will keep calm and carry on in 2022.

Recent common prosperity rhetoric, plus patriotic education, have reportedly sweetened public sentiment. Yet popular live streamers were blocked in December, allegedly for tax evasion and other mischief. Relentless attacks on non-state schooling look set to threaten education quality and provision as jobless youth multiply. Legislation to protect women’s rights echoes the pervasive emphasis on stability amidst a heated online debate on gender inequality sparked by a recent high-profile celebrity divorce.

Externally, Beijing has tactically retreated to more nuanced assertiveness, as wolf warriors, like the recently-retired Global Times editor, Hu Xijin 胡锡进, move to the wings. Two white papers issued in December proclaim the PRC a ‘superior’ democracy, finessing the low voter turnout in recent Hong Kong elections as demonstrating the legitimacy of the new regime.

Weak demand, supply-chain issues and declining expectations are depressing the economy, confirmed the 2022 central economic work conference (CEWC), the annual conclave to set targets and near-term plans for the coming year. With the upcoming 20th National Party Congress, ‘stability’, will predictably, dominate economic policy, as it will every other sphere of activity. Monetary and fiscal policy are to be eased, the former via targeted measures, e.g. supporting SMEs, and funding green development. Clarifying expectations was evident in the move to detail overseas IPO protocols. Domestic firms can list overseas, given an official nod. Firms in sectors on the foreign investment negative list can also list abroad, but investment is capped.

A tsunami of industrial 5-year plans emerged in December

  • digitisation
  • ICT
  • big data
  • software and information services
  • robotics
  • smart manufacturing
  • green manufacturing
  • raw materials
  • medical equipment
  • marine economy

Most, if not all, spotlight supply chain security, industry consolidation, common prosperity, carbon neutrality and national security. Leading enterprises—SOEs and big tech—are on notice to

  • reduce components and technologies that rely on imports
  • refrain from anti-competitive practices
  • pay accounts, not leaving them in arrears
  • promote SME growth
  • improve energy and resource efficiency
  • be mindful of supply chain and data security

A tumultuous 2021 and the impending Party Congress prompt Beijing to prioritise energy security in 2022, per the readouts from CEWC and 2022 national energy work conference. This does not portend slowing down decarbonisation of the sector, say experts. Rollouts of renewables must speed up, instructs Beijing; yet until low carbon energy sources can provide stable and reliable alternatives, coal must be supported as the national energy ‘ballast’.

China celebrated its 20th anniversary of entry to the WTO in December. Experts urge breaking the deadlock stopping appointment of judges to rule on trade disputes, and designing a more inclusive global trade framework. Exports and imports grew beyond market expectations in November. The trend will likely continue in Q1 2022, fuelled by global supply chain bottlenecks. With RCEP taking effect on 1 Jan 2022, localities and firms are actively pursuing preferential tariffs under ‘rules of origin’ provisions. PRC tariffs will be cut for some consumer and high-end manufacturing imports in 2022; foreign investors will have greater access to manufacturing and services sectors via a shorter 2021 negative list for foreign investment.

Responding to turbulence in 2021 food markets, the 2022 central rural work conference reiterated Xi’s slogan of keeping the Chinese rice bowl firmly in China’s hands. A previously unheard of strict ‘safety line’ for food imports was mooted by Xi at the tone-setting CEWC. Ensuring supplies of ag products is uppermost, with ‘rural revitalisation’ and ‘common prosperity’ themes bolstering the rural sector as a domestic growth driver.

2021 reimbursable drug deals saw unprecedented results due to improved rulings on evidence. Pharma innovation is urged to meet the PRC’s ambition to become a pharma powerhouse by 2035.


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barrel principle 木桶原理 mùtǒng yuánlǐ

fatal shortcomings
fatal shortcomings

This popular policy meme is used to suggest an institution is only as robust as its weakest point. A single short stave (短板 duǎnbǎn) renders a traditional wooden barrel unable to hold as much liquid as was intended, i.e. near useless. The image shows long and short staves as ‘advantages’ and ‘disadvantages’.

Fond of the analogy, Xi Jinping likes to add that the base or ‘floor’ of the barrel is equally important. This works well with his ‘baseline thinking’, a theme gaining in strength in the wake of the Trump-era trade war and, above all, the COVID-19 pandemic.


featured analysis

houses are for living
real estate tax pilots hoped to upend current fiscal model

real estate tax pilots revisited

‘Common prosperity’ has cast renewed light on tax reform, above all for property. Deemed crucial for ending the economy’s dependence on rising property values, easing local government fiscal woes and averting a national hard landing, real estate tax offers a sustainable path to funding local public goods. full post open access →


december policy movers

policy professionals in and out of the establishment

Han Wenxiu 韩文秀 Central Financial and Economic Affairs Commission deputy director

The CEWC’s stability focus refers not just to the economy, but political stability as well, points out Han. Baseline thinking is still needed as hidden risks abound. Financial risk deserves to be dealt with via market means, but local finance regulators are obliged to ensure it does not spread, he advises. The PRC’s long-term economic trajectory will remain unchanged, but spillover from other jurisdictions opting for ‘ultra-loose’ COVID-19 policies pose a short-term challenge to the economy. Officials at all levels must learn to distinguish short- from long-term trends and ensure policy timeframes align.

Han’s career began in the Economic Research Department of the State Planning Commission (NDRC’s predecessor) in 1989. Moving up, he held various positions in NDRC and State Council, taking a doctorate from Renmin University in 2010. He took up his current position at the Central Finance and Economics Commission in 2018.

Long Guoqiang 隆国强 | State Council Development Research Centre deputy director

International trade is digitising, notes Long: it is getting greener, offering more services and becoming more resilient. Digital services exceed 60 percent of global services trade, enabling new services to flow across borders in digital form (e.g. IT services and digital design). The upsurge of cross-border e-commerce transforms conventional methods. Meanwhile, cross-border flows closely relate to data security and consumer privacy protection. Trade development and national security must be balanced via rules for digital trade. Compliance with green trade standards is another must. Proposed green regulations and carbon reduction constraints on global logistics and procurement are expected to soon become mandatory. Given ongoing supply chain disruptions, diversifying sources and consolidating industrial development will be essential.

Joining the Development Research Centre in 1993, Long took up his current position in 2015. He was a delegate to the 19th National Party Congress (2017). He works on the global economy.

Tang Renhu 唐人虎 | Sinocarbon Innovation and Investment general manager

Launched in July 2021, the national carbon market’s performance, argues Tang, has so far been neither fantastic nor dismal: some fixes are imperative.

  • State Council must introduce high-level legislation; current rules are set and enforced at ministerial level, dampening both severe penalties and confidence in the market
  • regulators should set absolute emission caps, rather than regulating emissions intensity, to encourage decarbonising
  • systems thinking is needed: clear rules, transparency and strict enforcement should engender long term stability
  • the role of renewable power projects must be clarified as CCERs; they may be carbon neutral, but not carbon negative, points out Tang, as is the case with carbon capture or afforestation: Treating them as emissions offsets muddles the goals of the carbon market with that of carbon neutrality

Low carbon pundit Tang has been a chief scientist on the National Basic Research Program and a member of the NDRC’s (National Development and Reform Commission) CCER Review Committee. Before joining Sinocarbon, he advised state agencies on scitech support and has consulted internationally.


policy ticker highlights

gems from our feed of policy releases and domestic debate

governance

resolution on major achievements Politburo meeting: the major work of 2021 and major tasks for 2022

People’s Daily | 6 December

context: The Politburo meeting at the end of every year evaluates the Party’s major work in that year and outlines major tasks for the following year. The 20th Party Congress will be convened by end 2022, which is especially meaningful for Xi. Given the Congress will address power transition, the entire country enters a ‘sensitive period’ normally more than one year prior to the Party Congress, when turmoils may be created deliberately in order to shake up personnel arrangements. Considering the Q3 economic data, Beijing does not want an economic downturn which may usher in social instability which would distract from the event. Besides stability maintenance in security, prioritising social stability also normally signals no big change in policy and regulation but a focus on ‘holding operations’ in all areas.

macroeconomy

stability tops agenda at Central Economic Work Conference for 2022

State Council | 13 December

context: Heightened pressure on the economy was no longer news by Q3 2021, and this was featured even more prominently at the tone-setting Central Economic Work Conference (CEWC) for 2022. Reform of the ‘deep water zone’ in the economic structure inevitably slows growth. Coupled with supply-side fluctuations, geopolitical tension and pandemic uncertainties, threats loom over the big picture. But stability is always the unchallengeable overriding theme, which means a temporary shakeup of policy priorities would not be surprising.

science and innovation

70 percent self-sufficiency: 5-year plan for smart manufacturing

Ministry of Industry and Information Technology (1), Ministry of Industry and Information Technology (2) | 28 December

context: Many of the targets set out in the last smart manufacturing 5-year plan, including the self-sufficiency rate and the number of systemic solution providers, have been achieved. Most initiatives in the new 5-year plan are built on the previous plan, though self-reliance, security and controllability now take the front seat.

energy and environment

Central Economic Work Conference: support for both coal and renewables

The Paper | 11 December

context: Overall, the readout’s tone emphasises stability. It calls for a rapid rollout of renewables, and for coal to be supported as the mainstay until this is achieved. Cautious language on coal implies that strict phasing-down policies are unlikely in 2022. Official confirmation that emissions targets will replace energy consumption targets will boost demand for renewables and allow regulators to more directly address emissions.

trade policy

2021 foreign investment negative list liberalises access in manufacturing

Ministry of Commerce (1), Ministry of Commerce (2), Ministry of Commerce (3) | 27 December

context: The updated foreign investment negative list further shortens the list of restricted items from 33 (2020 version) to 31, and allows greater access in the services sector in FTZs (free trade zones). On the other hand, national security-related sectors will remain closed to foreign investors and a new ban on media sector investment will take effect next year.

agriculture

Central Rural Work Conference: insulate ag from external risks

Farmers’ Daily | 26 December

context: A long-standing concern, food security received more attention than ever at this year’s CRWC (Central Rural Work Conference), as international tensions, the ongoing COVID-19 pandemic and extreme weather events are testing Beijing’s ability to guarantee the stable supply of primary products. Stabilising ag production and promoting rural development go hand in hand in Beijing’s efforts to insulate the nation from external risk and stimulate domestic growth.

society

youth unemployment worsening

Caixin, China Youth Daily, Jiemian | 8 December

context: The Central Economic Work Conference placed weight on the ‘six protections’ and ‘six stabilities’. Potential degradation of people’s livelihoods due to domestic and global economic abnormalities was deemed the prime danger faced by state and Party.



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