roundup from our portfolios

For all that total PRC trade with Russia is limited, local banks grasp that there is no safe minimum for PRC firms in the current Ukraine crisis. Credit lines were swiftly restricted. Soaring global energy and commodity prices are already pressuring domestic SMEs. With the US Fed expected to continue raising interest rates, capital outflows may be even greater than the unprecedented outflows since the Russian invasion of Ukraine, along with RMB jitters.

The major legislative event of the year, the Two Sessions, and the Premier’s GWR (government work report) dominate domestic policy reporting in March. As usual, the Sessions saw media attention grabbed by delegates’ welfare concerns. The NPC, the peak legislative body, put its 2022 focus on the economy, living standards and green protection.

Li Keqiang 李克强 set an aspirational GDP target of 5.5 percent at this his last annual GWR before stepping down as premier. On all counts, Beijing redoubled its swerve to ‘stability’ for 2022. But resurgent COVID infections and global disruption from the Ukraine invasion add to mounting uncertainty. More monetary easing and greater support for real estate are on the way, claimed Vice Premier Liu He 刘鹤. Progress recently made in reining in real estate firms and local government debt will yield ground to short-term easing impulses.

Food security ranked very top of the Premier’s cautious and inward-looking GWR. This echoed the late-arriving (and as usual ag-focused) No. 1 Document. Despite an array of threats to winter wheat planting—cornerstone of summer harvest— the centre is downplaying imports, failing to mention them in the No 1. Document for the first time in years. Moves to raise yields and reduce feed grain consumption, experts say, will only have a marginal impact. International suppliers expect record-breaking grain imports to continue.

Mixed signals from the centre stymie the tech sector. As investors sought safe ports in a storm, tech stocks underwent record-breaking swings in Hong Kong and New York. The GWR did little more than recycle talking points on the sector, offering scant assurance to tech firms and investors hoping for fewer regulatory dramas. In the wake of the Ukraine crisis, tech stocks fell off a cliff as streams of bad news, from US delisting fears to massive lay-offs, were priced in. A later rally hinged on Liu He’s recall of ‘law-based governance’, i.e. drama-free regulation of the platform economy.

Energy security, above all via fossil fuels, is critical to economic stability and the admittedly ‘arduous’ GDP growth target. Controls on producing and using these fuels will ease in 2022. Xi’s carbon neutrality agenda remains as salient as ever, but there is a proviso: short-run growth must not be set back. Heavier lifting, not least coal phase-out and green industrial transition, will be deferred until later in the current 5-year plan.

With a headline nationwide reemergence of COVID-19, the worst since Wuhan, Beijing is belatedly adapting tactics to fight Omicron. But given the public fear of ‘co-existence’, there is little sign of a let-up in the zero-COVID’ strategy, not least its stigmatising of ‘foreign’ goods and people.

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two sessions 两会 liǎnghuì

role-playing consultation

Also translated as ‘Two Meetings’, this refers to the annual plenary sessions of two deliberative bodies: the NPC (National People’s Congress) and the CPPCC (Chinese People’s Political Consultative Congress). Peak convocations of delegates from regional assemblies, they meet within days of each other in early March each year. The NPC is the senior meeting of the two, hearing the premier’s ‘Government Work Report’, and passing legislation. The CPPCC, termed a ‘talk-shop’ by one chair, brings together citizens from many walks of life, including retired state and Party officials. Both meetings engage in political theatre, providing an echo chamber for policy decided elsewhere. Media coverage of delegates’ opinions remains a valuable source of policy information.

featured analysis

greater scope for scrutiny

titans of industry under the law

Under Xi’s ‘law-based governance’ paradigm, the oft-updated Company Law is the bulwark of reining in corporate misbehaviour. Tinkered with five times since enactment in 1993, the law is again up for amendment, its second major makeover since 2005. This, in principle, backs up Beijing’s moves over 2020–21 to rein in tech giants and their narrow (i.e. Party-indifferent) bottom-line focus. The pitch is that the business environment stands to benefit from clear laws, a more robust regulatory stance and, not least, the ubiquitous presence of the Party. full post open access →

march policy movers

policy professionals in and out of the establishment

Yu Miaojie 余淼杰 | Peking University School of National Development party committee secretary and professor

With no end in sight to supply chain disruptions or global tension, Yu predicts the PRC trade surplus will exceed 4 tn in 2022. RMB will keep appreciating against USD, reaching around 6.2. This will not dampen export growth however: overseas demand will stay strong. Fostering innovative development of digital trade, including in services and data, is a priority in the Government Work Report. Beijing still aims to win the competition with developed countries in digital infrastructure and standards. Yet protecting national security-related technology is the precondition for external opening. Given rising geopolitical risks, BRI projects along traditional silk routes are facing extra uncertainties. Prioritising the development of maritime silk road projects is now the strategy, not least cooperation with ASEAN countries under RCEP.

Yu was the first Chinese economist to win the UK’s Royal Economic Society Prize. His research interests focus on international economics and trade. Yu is special advisor to a range of international organisations, including the UN and Asian Development Bank, and deputy chief editor of the renowned journal Review of International Economics. He holds a PhD in economics from the University of California Davis.

Zhang Zhanbin 张占斌 | CCP Central Committee Party School Marxist Theory Institute and CPPCC delegate

Regulators must, suggests Zhang, walk the tightrope of helping internet platforms grow while curbing their anti-competitive inclination and disorderly, profit-driven expansion. Their operations should be managed, he adds, via a national data bureau. As to PRC firms ‘going global’, Zhang urges them to do so competitively. Helping set international rules, Beijing should guide PRC firms through an ever more complex regulatory environment.

Historian and economist, Zhang is an advisor to the Central Party School and a CPPCC delegate. He has carried out state-funded research on industrial policies, innovation, urbanisation, etc.

Li Daokui 李稻葵 | Tsinghua University Institute for Chinese Economic Practice and Thinking director

The PRC economy, explains Li, is in a period of adjustment; outdated growth models and COVID-19 hangovers must be overcome. Both efficiency and domestic demand must be raised. Transforming the economic model, he adds, entails decarbonising the economy. Overzealous localities, however, try to achieve this overnight via crude administrative measures. Like fasting for weight loss, explains Li, this is unsustainable. Pricing carbon via a carbon tax, he argues, is the best way forward; and should be levied with proceeds directed to localities as incentives.

Taking a PhD in economics at Harvard in 1992, Li taught at the University of Michigan before returning to the PRC. Among respected economics pundits, he is a member of the Chinese People’s Political Consultative Conference Standing Committee.

policy ticker highlights

gems from our feed of policy releases and domestic debate

trade policy

war in Ukraine could boost Chinese exports

Lianhe Zaobao | 3 March

context: Beijing has indicated tacit support of Moscow after the outbreak of war in Ukraine. While Russia’s dependence on China increases as the war escalates, Beijing is facing growing international criticism for its funding of Russian aggression.


NPC strengthening economic legislation in 2022

National People’s Congress (1), National People’s Congress (2) | 11 March

context: The number of laws formulated and amended in 2021 was staggering. NPC is planning to slow down the pace of legislation in 2022 and will attach greater importance to legislation in the economic field. More energy will be allocated to oversight tasks, especially foreign-related matters.


Two Sessions: monetary policy expected to loosen up

State Council, Yicai, Sina Finance | 7 March

context: At 5.5 percent the 2022 GDP target seems quite confident, especially considering Q4 2021 only registered 4.0 percent growth, prompting the question of how this will be achieved. Fiscal stimuli are set to play a larger role, though still constrained by tight local finance. The degree of monetary policy loosening thus becomes crucial.


Government Work Report highlights ag and rural priorities for 2022

China Agricultural News, State Council, Shanghai Securities News | 10 March

context: Beijing revealed a cautious and inward-looking government report at the annual Two Sessions, with stability and risk control dominating the priorities for 2022. In terms of ag and rural development, food security is top of the list, while more efforts are called for to carry forward rural revitalisation.

science and innovation

hydrogen 15-year strategy: don’t hype it up

National Development and Reform Commission | 23 March

context: Recognising hydrogen’s potential benefit for China’s low-carbon transformation, Beijing has been working on a plan for the industry for quite some time. This much anticipated 15-year plan, a first for hydrogen, was finally released. What stands out is NDRC’s emphasis on ‘orderly development’ and no overinvestment.

energy and environment

energy intensity now to be assessed alongside other factors

Sohu, Yicai | 5 March

context: ‘Dual control’ targets were implemented rigidly in the past at the expense of economic growth. By advocating for flexibility and considerations beyond numerical ‘dual control’ targets, Beijing is leaving room for emissions to grow in 2022 to meet its ambitious 5.5 percent GDP annual growth target, even as it aims to reduce energy intensity by 13.5 percent by 2025.


internal migration surged in 2021

Jiemian | 1 March

context: Mass rural-urban migration has hollowed out the countryside while migrants and their children struggle to access urban public services under the hukou system. As ‘common prosperity’ takes priority, hukou reform has started for ‘new urbanisation’ to advance further per central directives. But large cities may be reluctant to undertake the costs of extending public services to migrants.

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