• thou shalt be an entrepreneur: old ways for ‘new normal’
  • healthcare goes digital: can mobile technology and big data solve healthcare’s big problems?
  • SOE reform plan underwhelms: despite long wait, direction remains unclear
  • reshaping farms: target prices replace price support
  • Energy Law and Environment Protection Tax Law: both short on coordinating regulatory reforms
  • cybersecurity looms large in lead up to Xi state visit: ‘win-win’ efforts met with resistance from the US

Li Keqiang talks entrepreneurs and devolution on his high-tech promotion trip to Dalian, Liaoning province

governance position

Eight city clusters piloting new governance models to foster innovation in the economy are given unusually tough deadlines. State Council leading group on innovation expects their plans by the end 2015. The pilots will set examples for other regions in areas like IPR protection.

The censuring of central-level SOEs and parading of disgraced executives is designed to reassure the public that state-owned assets will not be looted in the name of SOE reform, as under former premier Zhu Rongji 朱镕基. CDIC will be responsible for ensuring Party discipline.

Details of Ministry of Transport’s proposed regulation on taxi-hailing apps are emerging as more cities seek to regulate their taxi industries. Hangzhou won praise for reducing taxi drivers’ monthly dues by hundreds of yuan, and Beijing released its own official, ‘more reliable’ app service. Regulatory competition will intensify.

Seeking to further sanitise TV screens, censorship by provincial-level units of SAPPRFT will now be followed by provincial publicity (propaganda) department review.

watching for

  • Ministry of Transport regulation on taxi-hailing apps
  • pace of implementation of eight city cluster innovation plans
  • progress separating judicial personnel from bureaucrats

healthcare doubles down on an Internet-based future

social policy position

As part of the Internet+ plan, State Council calls for an ambitious expansion of big data use, including digitising health records, test results and appointment services. MofCOM encourages pharmaceutical distribution to move online, and for agencies to develop cross-border e-pharma sales regulations together.

NHFPC collaboration with online healthcare consulting firm Spring Rain introduces new digital technologies for diabetes treatment that aims to reduce pressure on large hospitals and primary care doctors. State Council’s plan to promote multi-level treatment systems expects to treat 65 percent of patients suffering from high blood pressure, diabetes, heart disease, and late stage tumours in community hospitals by 2017.

Promoted as a shift toward transparency, the big data plan, however, leaves out public finance data that would improve research and planning capability. Effective integration of new technologies should increase efficiency, but reform success faces an uphill battle to improve the image of community hospitals.

Primary and middle school teachers are now eligible for the highest teaching rank, previously reserved for university professors. The move increases salaries, and signals progress in slow-moving service agency reform.

watching for

  • pilot programs increasing role of big data in social security safety net
  • detailed industry standards on cross-provincial medicine e-commerce
  • provincial plans for meeting new teacher standards, due by the end of 2015
  • new public-private collaborations to provide technology-driven social services

it will be difficult to classify the giant central SOEs, like State Grid, that have diverse holdings

economy position

Despite delays to resolve inter-agency disagreement, the central SOE reform plan introduces few new goals. It endorses market principles and greater Party oversight at the same time. Withdrawing privileged access to markets and finance from SOEs in competitive sectors promises to reduce some state interference, but other sections suggest further consolidating and strengthening of state monopolies. Turf wars and contradictory interpretations are likely down the road.

PBoC and other agencies are attempting to discourage speculative bets against the RMB, shore up RMB demand and increase liquidity in the onshore forex market through a series of steps that effectively open the capital account in one direction. China’s forex reserves decreased by US$93.9 billion in August, as the cost of defending the RMB surged following downward pressure after the RMB’s surprise devaluation.

State Council and several agencies are easing minimum capital requirements and bolstering the financial leasing industry, while policy banks are issuing special bonds to push increased expenditure on infrastructure construction, as fixed asset investment continues to slow.

watching for

  • SOE reform pilots in investor-operator holding companies, state and private capital cooperation, and employee shareholding in mixed-ownership trials
  • further capital account inducements to encourage inward investment
  • fixed-asset investment growth

as peasants, including cotton farmers in Xinjiang, lose incentives, the state is encouraging larger farms: a finer-tuned target price may be needed

agriculture position

Following a 2014 State Council commitment a target price policy on all staple food commodities, is an overdue reform. Despite scepticism, it is expected once the pilot programs have been evaluated in the near future.

Xinjiang, a target price pilot province, last season used land size as a key factor in calculating subsidies, but has now moved to a formula based almost entirely on sales to designated state purchasers. Now accountable to the central government for their own food security, provinces are more likely than before to rely on and develop trade, both domestically and globally. They will depend on support from central reform funding to restructure agriculture and social programs.

Officials should be cautious about adding wheat and rice to the target price policy, warns Zheng Fengtian 郑风田 Renmin University, as it may affect farmers’ incentives to grow grain. But changes must come quickly to cope with spiralling cost out of sync with global prices. Besides, many farmers are old and their children are not willing to follow their foot steps. As the government is looking towards sustainable, modern and professional practice, producers who cannot compete with the market will have little incentive to grow in the future.

More peasants are then expected to rent out their land, facilitating upscaling and pushing forward the reform program.

watching for

  • details on SOE reform in the agriculture sector
  • agriculture going global 2.0
  • aftermath of the Heilongjiang GMO scandal

Fujian’s Fuqing Nuclear Power Plant under construction using China’s own Hualong One nuclear technology

energy and environment position

The Energy Law and the Environment Protection Tax Law aim to coordinate and consolidate energy-saving and environment protection regulatory reforms across industry and government. Both presently fall short. The Tax Law joins resource, consumption, value-added and carbon taxes that ought to help the shift from arbitrary fees to a systematic tax regime. But the Law only partially addresses pollution taxes, and fails to consider implications for a wider pollution control regime. signal

The Energy Law, stalled since its first draft in 2007, climbed back up the agenda when submitted to the State Council for review. It should address issues common to all energy sectors including

  • property rights
  • market allocation
  • technological innovation
  • energy conservation standards
  • international cooperation

The energy sector continues to go global, even as key SOEs are the target of graft investigations. Sinopec announces large stakes in Russian oil and gas companies. China General Nuclear Power Group announces China-made nuclear power stations for Kenya; and the first offshore wind project near Jiangxi.

watching for

  • Environmental Impact Assessment Law revisions
  • qualitative as well as quantitative pollution measures to be incorporated into 13th 5-year plan
  • volatile organic compounds measurements to enter air quality index

President Xi Jinping’s special envoy Meng Jianzhu 孟建柱 meets with US Secretary of State John Kerry to tackle cybersecurity

geopolitics position

The Silk Road is going online. China will work with Belt and Road countries to improve telecommunication networks and e-commerce, and cooperate on big data technology and cloud services. But going global is not proving smooth sailing. Indonesia abandons the high-speed rail project that attracted interest from Chinese and Japanese investors. Bangladesh favoured Japan over China for its deepwater port project.

The Leading Group on Deepening Reform’s resolution on a negative list, and subsequent meeting with Michael Froman US Trade Representative, signals China’s commitment to a Bilateral Investment Treaty (BIT) with the US. But China is on the back foot. Xi felt obliged to send Meng Jianzhu Internet Security Leading Group chair and domestic security chief to manage China-US cyber security tensions in advance of his arrival, rather than a Vice Premier. South China Sea issues and US human rights concerns are also likely to upset China’s efforts to make Sino-US talks all about ‘mutually beneficial cooperation’.

Leadership change in Australia might bode well for China, according to Global Times. In contrast to his predecessor who referred to Japan as Australia’s ‘closest friend in Asia’, Turnbull has impressed Chinese observers with his references to China’s historical figures and recognition of China as an important ally of the West during WWII.

watching for

  • finalisation of the long-awaited Sino-US BIT
  • outcomes of Xi’s state visit to the US (22-28 September)
  • results of the parliamentary inquiry into the China-Australia Free Trade Agreement (expected early October)

in the spotlight

Meng Jianzhu 孟建柱 | Central Political-Legal Commission

Meng has been providing Xi with valuable service this fortnight. At home, he gave a well-received address balancing lawyers’ right to practice with law and order, at a national conference attended by senior judicial chiefs. He pushed Xi to adopt a Deepening Reform Leading Group resolution that reaffirms respect for lawyers’ rights, promising their lawful practice will be fully safeguarded. Meng then flew to the US as Xi’s manager of the National Security Commission office, to lower the temperature on cybersecurity in the lead up to Xi’s state visit. Though without a state title, he was treated as counterpart to US National Security Advisor Susan Rice and Secretary of State John Kerry. Wang Qishan 王岐山 was, in contrast, denied entry into the US earlier this year on the grounds that CDIC is not part of the state.

Su Ming 苏明 | MoF Research Institute for Fiscal Science

As MoF Research Institute for Fiscal Science deputy head, Su works alongside Liu Shangxi 刘尚希 on fiscal policies relating to rural, energy and environment issues. An economics PhD, Su has directed over 60 ministerial research projects, including cooperating with international financial institutions on fiscal and tax policy levers for SME development and clean development mechanism. Environment protection tax revenue should, he argues, be included in the general budget. Ear-marking revenue for environment protection purposes will only increase administrative costs. Resource tax reform targeting upstream sectors is more pressing than a carbon tax at present. Introducing a carbon tax by 2019 would encourage Chinese exports by exempting them from carbon tariffs levied by developed countries.

Zheng Fengtian 郑风田 | RUC Agricultural Economics and Rural Development

A renowned liberal economist with expertise in rural industry and innovation, Zheng advised provincial governments on managing returning migrant workers following the global financial crisis. Well-versed in the effects of innovation on GDP and employment as they have played out elsewhere in the world, Zheng supports the current rural entrepreneurship policy. With accumulated savings, experience and technological know-how, returned migrants and their businesses may be an effective means to narrow the urban-rural development gap. Zheng takes inspiration from efforts to support rural e-commerce in Suichang county, Zhejiang.

Zhang Rui 张锐 | Spring Rain Software

Formerly a high-level manager at a media company, Zhang Rui resigned to found online healthcare provider Spring Rain Software in 2011. It has quickly become China’s leading online health company, claiming 86 million registered users. In August 2014, it received USD50 million in series C funding, and is currently collaborating with NHFPC to run pilots in Wuhan, Qingdao, and Chongqing’s Yubei district. Riding the big data wave, Zhang has made a strong case that e-healthcare can address healthcare inequality, high drug prices, and fraught doctor-patient relationships. With the industry still at an early stage, the success or failure of Zhang’s project will be at the centre of debates on e-healthcare policy.

State-owned Assets Supervision and Administration Commission 国有资产监督管理委员会

Created in 2003 to unify supervision of central-level SOEs and prevent loss of state assets during privatisation, SASAC has become the poster child of state-sector inefficiency, dragging its feet in reform and accusing provinces of privatising too quickly. It comes out a net loser in the SOE reform plan, scaled back from managing ‘personnel, operations and assets’ to solely managing capital, plus perhaps a few central SOEs. The strongest words in the plan’s watered-down language exhort SASAC to mind its boundaries and draw up its own list of where they end. Clauses on centralising supervision and unifying standards allow it to further consolidate some of China’s 152,000 SOEs under its supervision—currently it oversees about 38,000 central SOEs. This appears as a trade-off for letting MoF impose strict budgeting processes on SOEs, and collect a greater share of their earnings. Its next move may be to orchestrate mergers of China’s largest SOEs, an initiative it claims will increase efficiency; liberals fear it will create behemoths too big to regulate.

Wang Wen 王文 | Renmin University of China

The Xi-Obama visit, argues Wang, is unlikely to destabilise Sino-US ties, despite touchy subjects on the meeting agenda. Currently visiting the US, Wang’s commentaries draw on his interactions with local academics. As well as calling for China to partner with the United States, Wang comments that China’s role as a ‘global stakeholder’ should not be underestimated. Wang’s confidence represents an expanding body of opinion in Chinese foreign policy circles that China should more actively pursue its international interests. Wang also regularly comments on the Belt and Road initiative, encouraging companies to take risks and ‘go global’.

in case you missed it…

cp.signals—domestic policy movement
pensions embrace market returns
‘capacity cooperation’: going global 2.0

cp.positions—audit of shifts across policy sectors
mid september: lining up behind the chief
end august: rebalancing agriculture

cp.focus—exploratory analysis
rhetoric makeover heading for Washington?
the changing face of the Chinese consumer

cp.observer—monthly roundup
august roundup: reform agenda edges forward
july roundup: correcting ambitions

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