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With a global food crisis threatening, Beijing is suddenly fast-tracking domestic GMO production. In the too-hard basket for over a decade and a half, GMO approvals have had a dream run in recent months with national standards for corn and soybean finalised in June. The summer harvest is underway nationwide, but global and domestic supplies are tight and continuing COVID controls worsen the outlook. Farm production, logistics and sales have an extra green light; but regions with outbreaks are still likely to struggle with arbitrary blocks and red tape.

With Shanghai deemed back in normal territory, people and the economy are on the move nationwide. Waking up to the impact on production, Beijing is, for the first time penalising arbitrary COVID intervention. Local officials have hitherto been punished for failing to prevent/control COVID; economic slowdown was not held against them. The pendulum is swinging back—slowly, as evidenced by the mildness of penalties, but nonetheless in a positive direction.

Zero COVID remains non-negotiable, but its definition is changing. With H2 2022 forecasts worse than bleak, the need to revitalise the economy, not least jobs, is altering the equation. Localities are on notice to bear the costs of COVID PCR tests, making mass testing likely to be ever more selective.

As growth slows, Shanghai made a splash with a ‘talent policy’ to lure non-Shanghai hukou holders (see lexicon) to start careers in the city—look out for how other cities and Beijing respond to this escalation in the talent war, not least in its impact on real-estate values.

Many indicators seemed to be regaining lost ground in May; recession fears due to the spring lockdowns eased. But lagging consumer demand and the dire property market remain headwinds. Financial risk avoided in one sector pops up elsewhere: small and medium banks, on notice to lend more, are a case in point. State-backed asset management companies (a.k.a. ‘bad banks’ that isolate and clean-up non-performing loans) are now cleared to escalate the mop-up. Looking long-term, a guidance document on making over sub-provincial fiscal systems looks to allocate funding better and step up centre-local reconfiguration.

Trade performance in May 2022 rebounded slightly, helped by some freeing up of logistics and a depreciated RMB. Exports grew above market expectations by some 17 percent y-o-y (April was a mere 4 percent), and imports, while not growing in April, were up by over 4 percent. Weak domestic demand still hampers imports, whereas inflated energy and bulk commodity prices worsen supply shortages. To boost trade, a range of measures, like speeding up export tax rebates and tax returns, streamlining customs clearance and securing logistics and transport, were rolled out on 1 June when Shanghai reopened.

With foreign exchange volatile, banks are urged to provide a range of financial tools and streamline cross-border RMB settlement services to help trading firms, above all SMEs, navigate forex uncertainty. The domestic economy is recovering gradually while the US dollar index weakens under growing recession risks; more stability can be expected in the forex market.

‘Whitelists’ of crucial supply chain entities in strategic industries (including autos, integrated circuits, and consumer electronics, among others) are in place. They will take priority in restoring supply chain stability after the spring lockdowns.

Some concrete steps have been taken to ease the crackdown on tech firms, such as allowing more of them to access international debt markets and approving a second batch of video games. Beijing continues to tighten its grip on internet content, with new regulations on mobile-app-based information services and a draft regulation on online comment.

June has seen a long-awaited release of a 5-year plan for renewables, stipulating that they will meet half of new power demand by 2025. To support this dramatic transition, a series of marketising measures were rolled out for energy storage, a much-needed boost to the nascent subsector. The carbon market experienced a further setback when emissions verification deadlines were postponed on 8 June.


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hukou 户口 hùkǒu

not an unconditional ‘welcome’
Official document entitling residence in a given locality, with the accompanying benefits of housing, education, and medical services. Traditionally a statistical term for registered permanent residents (hu referred to households, kou to individuals), it now indicates the control system tying both rural and urban people to their mother’s place of birth, preventing them accessing social services when they ‘migrate’ to work in larger, more developed cities. ‘The city welcomes you’, says the sign in the picture. The approaching migrant family (and any ambitious talent) must, however, cross a chasm over a plank marked ‘accumulate points to gain hukou entitlement’ in the city.

featured analysis

where does security end…

‘holistic security’: pursuing security of everything

Security was in the past more critical for the PRC than for other major powers. Objective or not, Beijing’s perception of threat cast a huge shadow, making and breaking leaders and forcing the policy pace domestically. In 2022 this perception and its policy implications impact the whole world.

Now crystallising as a ‘holistic approach to national security’, this favoured rubric is applied willy-nilly to a swathe of domestic issues. Defined in terms of 16 security domains (political, homeland, military, economic, cultural, social, technological, cyber, ecological, resource, nuclear, overseas interests, biological, space, polar), it finds its way into every corner of PRC society, not least the economy. full post open access →


june policy movers

policy professionals in and out of the establishment

Li Huaqiang 李华强 | Ministry of Transport Transport Service Department vice director

Li claimed at a late May press conference that ag logistics were running well, despite supply chain disruptions. Since 5 May, all villages have access to ag inputs; only 1.5 percent of 3,000 rural counties were affected by the recent lockdowns. Yet chains remain risky, needing support measures, e.g. transport permits for strategic ag materials. Distribution of energy, raw materials and key manufacturers critical to normal operation is fire-walled. A further target is ‘last mile’ distribution, hugely problematic in the Shanghai lockdown. Smaller hubs blocked by outbreaks will gradually return to work. Contactless delivery services for residential complexes are to be boosted.

A deputy director of the transport service department, Li manages the transport hubs nationwide and the supplies of strategic goods under emergency circumstances.

Zhao Yongfeng 赵永峰 | Shanghai Municipal Human Resources and Social Security Bureau chief

Human resources are valuable, indeed decisive factors for Shanghai’s future, argues Zhao. He directs the HRSS Bureau’s work attracting overseas talent, cutting red tape, and enhancing support services. Once guesting on a Bilibili live-stream promoting a ‘Stay in Shanghai’ PR campaign, Zhao called young overseas talent to return to Shanghai, spruiking it as an international economic, trade, and tech innovation centre and an excellent environment for talented returnees to realise their own dreams and the great China dream. As the city hums back to work, the attraction of the policy will be soon tested.

Zhao was previously director of the Shanghai Municipal Committee General Office Secretariat and deputy disciplinary inspector, and has led government work in three Shanghai districts, including roles as local Party school president and administrative school dean, Shanghai Airport Authority director, and cultural relics management committee deputy director.

Liu Ke 刘科 | Southern University of Science and Technology Clean Energy Research Institute director

Lithium-ion as the tech core is for Liu a doubtful solution for the low-carbon transition. Demand from NEVs is sending lithium prices skyward, making lithium-ion batteries less competitive compared to other technologies. Concerned that the high cost of lithium-based storage could hinder the renewables rollout, Liu is an advocate of green methanol produced from renewables, given its cost effectiveness. Green methanol can be produced by renewables-powered electrolysis on water to produce hydrogen and oxygen, which can be combined with a carbon source such as biomass, urban waste or coal water slurry for gasification, finally synthesising methanol. Methanol is a great carrier for hydrogen, with one litre of methanol able to produce twice as much hydrogen as a litre of liquid hydrogen, according to Liu. This kind of liquid-based energy system would have the added benefit of being able to use existing infrastructure designed for liquid fossil fuels.

Liu has acted as Southern University of Science and Technology Chemistry department chair, School of Innovation and Entrepreneurship director and Clean Energy Research Institute director since 2016. He was elected as an Australian National Academy of Engineering member in 2015.


policy ticker highlights

gems from our feed of policy releases and domestic debate

agriculture

national standards for reviewing GM corn and soybean varieties

Ministry of Agriculture, Sina Finance | 8 June

context: The standards follow serial regulatory updates in 2021, which clarified the procedure for GMO biosecurity assessment and production license approval. With a batch of domestic GM soybean and corn varieties already holding bio-certificates, leading seed companies are approaching the final stage of approval of GMO commercial production.

governance

over-enthusiastic COVID prevention punished for the first time

People’s Daily | 13 June

context: Local officials continue to ‘over-react’ to the COVID-19 pandemic, even though the central government now repeatedly warns against blocking logistics and transport in the name of preventing COVID-19 and stresses minimising Zero-COVID’s economic cost. This is because previously, local government officials were punished for failing to prevent the epidemic rather than for creating an economic slowdown. This forced officials to prioritise the Zero-COVID policy and not ratchet up prevention criteria. The latest development marks the first time that officials have been punished for over-prevention and blocking logistics, signalling a shift to prioritising the economy. But the shift is limited. Firstly, it is a just warning. Second, the warning was announced by the State Council, which does not have too much say in personnel movement, unlike the Central Commission of Discipline and Inspection.

society

beefing up COVID-19 testing

National Health Commission (1), National Health Commission (2), National Health Commission (3) | 2 June

context: The new announcements came as the media unveils scandals related to fake test results and biotech companies making false claims on Covid-related expenditures. The public is also dissatisfied with healthcare workers breaking into residents’ homes to disinfect them without the owners’ consent.

macroeconomy

expert suggestions on enhancing support for SMEs

Jiemian | 8 June

context: For small, private companies in China, the pervasive state intervention in the economy is the root of the problem. But given the path of dependence on existing institutions, these companies cannot survive without state support. State backing comes at the expense of the loss of property rights, operational autonomy, and incentives for small enterprises to innovate.

trade policy

improving cross-border RMB settlement for new modes of trade

21st Century Business Herald, People’s Bank of China | 20 June

context: The rapid depreciation of the RMB over the past two months has been a wake-up call for traders to strengthen protection against forex risk with financial tools. Given that most currently available products are designed for big firms, banks are urged to provide more personalised and creative services for SMEs.

science and innovation

ministry creates ‘whitelists’ for key supply-chain entities

Southern Metropolis Daily | 31 May

context: In Beijing’s push to restore stability in an economy disrupted by COVID measures, supply chain security is once again brought to the top of the agenda. By prioritising production resumption at companies deemed key to supply chain effectiveness in strategic industries, Beijing is looking to shield a number of its key strategic sectors from the impact of ongoing COVID-related issues.

energy and environment

half of new power demand to be met by renewables by 2025

Caixin | 1 June

context: The targets set out in this plan are largely consistent with other high-level plans and do not represent any major change to ambition. They will likely be easily achieved. Planners aim for the share of renewables in the power grid to rise by about 1 percent per year through to 2025. This will then gradually accelerate, as the National Development and Reform Commission aims to have 40 percent of the nation’s electricity coming from renewables by 2030.



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