context: The 2024 CEWC (Central Economic Work Conference) was held in Beijing on 11–12 December, shortly after the Politburo laid out priorities on economic work in 2025.
A more proactive macroeconomic policy will be implemented in 2025 with a specific plan to be unveiled at the upcoming National People's Congress, says Han Wenxiu 韩文秀 Central Financial and Economic Commission Office deputy director in an authorative interpretation of the Central Economic Work Conference. This is a significant change that is conducive to increasing counter-cyclical regulation, better responding to unstable and uncertain factors in economic operation and providing strong policy support for achieving the annual goals and tasks, meaning
Han notes that powerful policy combination punches are needed to
Action will focus on boosting domestic demand as the main growth driver by
Through coordinating and unifying quality improvement and reasonable growth throughout high-quality development and leveraging the vast PRC market, a key aim is to
In the context of increasing uncertainty, the external environment requires more reliance on domestic demand and expanding consumer demand, says Han, noting
It is necessary to coordinate the relationship between an effective market and an effective government to form an economic order that is 'both active and controllable', Han stresses. The more standardised government behavior, the more effective the market role, he says, noting
PRC economic policy in 2025 will also centre on
context: Despite US blockade, the PRC seeks to expand its international scitech outreach. Subsidy-driven domestic agricultural production failed to overcome import reliance for food security. Byzantine corporate structures pose risks for both SOEs and private enterprises. CCDRC (Central Comprehensively Deepening Reforms Commission) addresses these concerns. Its last meeting on 19 February 2024 focused on land management and grassroots emergency response.
The fifth meeting of CCDRC (Central Comprehensively Deepening Reforms Commission) was held on 11 Jun 2024, reports Xinhua. It approved three documents representing domains of reform on
Corporate governance reform aims to create world-class companies through party leadership, refined governance, clear property rights, scientific management and separating enterprise and state. It requires enterprise autonomy, problem-oriented approaches and tailored policies. The meeting thus specifies that
Agricultural reform aims to stabilise grain production and ensure food security. The meeting highlights the need to improve the income and motivation of grain farmers in major producing areas. Small farmers and new ag operators should be nudged towards modernised agricultural practices. Measures to improve production include
The scitech reform seeks to open the PRC to international cooperation and exchanges in innovation. While managing technological risks, an open environment requires a combination of
Xi Jinping 习近平 chaired the meeting, which was also attended by Li Qiang 李强, Wang Huning 王沪宁 and Cai Qi 蔡奇 who are all CCDRC deputy directors.
context: A new round of state-owned enterprise reform has been expected since a new ‘leading group’ to boost strategic emerging industries in central state-owned enterprises was announced on 27 May.
SASAC (State-owned Assets Supervision and Administration Commission) held a seminar on 25-26 July focused on enhancing SOEs (state-owned enterprises), reports Shanghai Securities News. The seminar gathered leaders from local SASACs to ensure the comprehensive execution of nationwide SOE reform, along with the mobilisation and deployment outlined in video conference calls for further action.
During the meeting, a directive was issued, calling for
Capital investment has an integral role in the growth of strategic emerging industries, stresses Li Jin 李锦 China Enterprise Research Institute chief researcher, noting this significance is pronounced during the fundamental stage of technology R&D which entails substantial capital outlays, extensive research timelines and gradual outcomes. A strategy involving long-term, patient, and strategic capital will serve as a crucial guide for advancing strategic emerging industries among SOEs, he argues.
context: A shrinking and rapidly ageing population can have far-reaching implications for the country’s pension system, currently built on three pillars: state-run basic pension insurance, annuities sponsored by employers, and commercial pensions. As fewer people contribute to the coffers and more rely on the benefits as a source of income, concerns loom over its sustainability.
Managing the balance sheet and building up reserves will be crucial for the financial sustainability of basic pension insurance, argues Sun Yongyong 孙永勇 Central China Normal University's School of Public Administration professor, Yicai reports. Income management entails
Sun advocates cautiously adjusting pension benefits and emphasises strict control over non-pension expenditure.
Currently, the minimum contribution period for basic pension insurance is 15 years, says Sun. Once this requirement is met, many stop paying into the scheme. Maintaining payments became harder over the last two years as household financial stability declined due to the pandemic. The average contribution period, however, is still too short, Sun notes, highlighting the need to raise the minimum threshold and adjust policies on how long people can receive the benefits.
Enterprise annuities form the second pillar of the pension system. Yet the coverage remains notably low, Sun says. Some 29 million employees participated in the scheme by 2021, National Health Commission reveals. That is only seven percent of those signing up for the urban employee basic pension insurance, part of the first pillar.
Sun stresses that the policy framework for annuities should be more flexible and adapt to different types of enterprises. The main reason why many companies are reluctant to set up annuities is that they see few returns from investing in the scheme, Sun explains, adding that showing employers the benefits will help increase the coverage.
The nascent third pillar, commercial pensions, needs more incentives. Apart from tax breaks, more participants will be attracted if funds within the prescribed limit can be guaranteed a higher rate of return than bank deposit interest rates, Sun suggests.
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.
Acknowledging the challenges faced by supply chains and the wider economy due to COVID disruptions, Xu Xiaolan 徐晓兰 MIIT (Ministry of Industry and Information Technology) vice-minister commented on 31 May on the measures implemented by the ministry to stabilise supply chain operations, in particular the ‘whitelist’ mechanism. Xu highlighted that the ministry has established a system of whitelisting key firms in the industries related to materials for pandemic control and healthcare, living essentials, agriculture production, and strategic industries. Specifically, the ministry will build platforms for supply chain coordination for key industries such as automobiles and integrated circuits, and focus on key regions such as the Yangtze River Delta to ensure good operations in supply chains and the broader industrial economy.
So far, the ministry-level whitelist includes 1,722 companies, including 447 ‘technologically advanced’ companies and 214 foreign or joint-venture companies, while about 208,000 companies are on the provincial whitelists, reported Southern Metropolis Daily. Measures to restore supply chain stability will prioritise the whitelisted companies, which include leading companies in the supply chains for automobile, integrated circuits, consumer electronics, equipment manufacturing, agricultural materials, and food and drugs, commented Luo Junjie 罗俊杰 MIIT spokesperson.
Xu Xiaolan did emphasise that the ‘whitelist’ mechanism is only a temporary measure in the government’s phased plan to assist the resumption of all work and production. She referred to the State Council’s comprehensive measures to boost the economy and outlined the ministry’s three priorities to stabilise the industrial economy, which are to
context: MIIT (Ministry of Industry and IT) plans for crude steel production to fall in 2021. However, crude steel output grew by some 15 percent in Q1 despite policies such as the environmental crackdown on the steel sector in Tangshan, adjusting export and import rebates, and changing steel capacity replacement measures. With some way to go before reaching their goal, further tightening is likely on the way.
Pressure on the steel industry to conform to national goals is increasing, as signalled by
In addition, more policy is on the way as Economic Information Daily reports that calling for comments for a set of 'Opinions' on steel industry high-quality development are completed and will soon be implemented. Their source says the policy will
context: The role of SOEs (state-owned enterprises) becomes more important under Xi, despite his earlier mantra of 'giving the market a decisive role in resource allocation'. The goal of market-oriented SOE reforms is never to raise the role of market actors, but to use the market framing to reshuffle and strengthen SOEs.
Hao Peng 郝鹏 SASAC (State-owned Assets Supervision and Administration Commission) chairman published an op-ed in Study Times, the CCP mouthpiece. SOEs, according to Hao, are the critical material and political foundation of CCP-governed socialist society with Chinese characteristics. In accordance with secretary-general Xi Jinping's strategic view, Hao fleshed out priorities of SOE work in the 14th five-year plan, including
SOE high-quality development should follow Xi's new development philosophy, says Hao, specifically
SOEs must be at the forefront of the dual circulation development model, adds Hao, becoming the
context: Recent defaults have riled the bond market. Analysts see this as a move by financial regulators to strengthen the long-term positioning of the market by breaking implicit guarantees that SOEs are 'too big to fail'. This may help improve financing for smaller firms as SOEs will disrupt credit markets less, but tightened SOE access to cheap capital will force the latter to become more efficient.
As defaults of SOE bonds continue, SC-FSDC (State Council Financial Stability and Development Committee) held a meeting on 21 November to discuss the developments, namely
The defaults have prompted investigations into the financial firms that gave the defaulters their credit rating and the bond underwriters such as Haitong Securities, Everbright Bank and Zhongyuan Bank. Investors argue that financial intermediaries helped firms evade debt by transferring assets without properly notifying authorities or investors. Connected to these investigations is the use of 'structural bonds', a financial product where the issuer purchases part of their own bond. The practice was temporarily banned by the National Association of Financial Market Institutional Investors on 18 November. The ban will hurt the issuance of some smaller companies as well because they also use the 'structural bonds', an anonymous bond underwriter told Economic Observer.
Another major issue revolves around the future credit rating of SOEs, previously the beneficiaries of implicit guarantees that the state would save them. This would impact their credit rating as the company may originally get a lower grade, but because they are state-owned they are boosted to higher credit ratings, reports Economic Observer. Breaking the implicit guarantee is a positive move towards marketisation in the long run, but will be painful for investors in the short-term.
context: The highest-level meeting so far in 2020 for SOE (state-owned enterprise) reform was held in Beijing deploying major policy directives. Although the 3-year action plan has not been publicly released, in recent months high-level officials have hinted at a reform direction of SOEs worth watching for.
The flagship ‘3-year Action Plan of SOE Reform’ is being fully launched, and is expected to be released to the public shortly, according to Xinhua Finance. Overall directives are out on 27 September, with Liu He 刘鹤 Vice Premier heading the meeting of the State Council SOE Reform Leading Group.
Five requirements are put forward for the implementation of the 3-year action plan, including
SOEs must first be true market entities, with innovation a top concern. The highlight is the emphasis on achieving innovation through incentive schemes, notes Li Jin 李锦 China Enterprise Development Research Centre.
In particular, SOEs will play a leading role and influence the development of private enterprises. Depending on different concentration requirements among industries, SOEs must
In the past, M&As were mainly between large SOEs, notes Zhu Shanbo 祝波善 SOE restructuring expert. M&As with private firms are new and could mean
context: Along with the Beijing-Tianjin-Hebei region, Yangtze River Delta and Pearl River Delta, Northeast China features heavily in national development strategies. A collection of Belt and Road projects connects Northeast China with Mongolia, Russia, and some European countries, meant to help transform the region's under-performing economy.
Jiang Zengwei 姜增伟 former China Council for the Promotion of International Trade chairman says that Northeast China should take Belt and Road Initiative as an opportunity to
In comparison to coastal regions, Northeast China lags behind. Jiang suggests the region needs
Complementary Northeast Asian economies provide opportunities for revitalisation of Northeast China, says Jiang, noting that an improved China-Japan relationship, enhanced China-Russia economic cooperation, and stabilisation of the Korean Peninsula all create a positive climate for cooperation among Northeast Asian countries.
Jiang also lists current developments in Northeast China
context: The long awaited five-year rural revitalisation strategic plan aims to deliver on a strategy first proposed at the 19th National Party Congress and foreshadowed by an ambitious February No. 1 Document on rural affairs. Senior leaders have declared the plan an 'historic task' essential to accomplishing China's modernisation goals and building a moderately prosperous society. By 2020, the plan calls for a complete institutional framework and policy system to be built—and a related Law is under development. Detailed action plans by local governments, and commitments of public and social finance are anticipated in coming months.
'Rural revitalisation strategic plan (2018-22)' was released by the Central Committee of the Chinese Communist Party and State Council 26 September. Its 37 sections outline periodic mandates and key tasks during 2018-22 toward the strategy’s overall goal of building rural areas with thriving businesses, pleasant living environments, social mores and civility, effective governance, and prosperity. Critical priorities include developing thriving rural businesses, delivering agricultural modernisation and creating vertically integrated rural industries. Details include
Focusing on the inputs of labour, land and capital, the plan also makes arrangements to speed up permanent urban residency for rural people moving to cities, strengthening talent support, infrastructure and social service support, guaranteeing land supply for the strategy’s implementation, diversifying sources of investment, improving financial support and other tasks.
Rural infrastructure conditions, particularly natural gas supply and rural sewage treatment facilities, are the major obstacles to revitalising industry and improving living environment in rural areas, Li Guoxiang 李国祥 Chinese Academy of Social Sciences (CASS) Rural Development Institute told Economic Information Daily.
Government should increase investment on rural social security system building to improve healthcare conditions in rural areas, says Zhu Qizhen 朱启臻 Chinese Agricultural University, cited by the Economic Information Daily. He also highlights that in addition to public investment, there is large space for social capital to participate in rural revitalisation.
The plan is fiscally feasible and has identified sources of funding for each key project, says Dang Guoying 党国英 CASS Rural Development Institute. She advocates a close connection between poverty alleviation and rural development.
context: An important part of curbing relentless local government borrowing is to disassociate local governments and their financing vehicles (LGFVs)—incorporated entities (mostly) wholly owned by local State-owned Asset Supervision and Administration Committees (SASAC). This has proven difficult, not least because of parasitical dynamics linking the two: LGFVs, having inherited highly-leveraged state-owned assets with poor prospects, are struggling to stand on their own two feet.
Yunnan Capital, an equity investment company wholly owned by Yunnan Provincial Government, delayed repayment of some trust loans for a month. According to the release by Zhongrong International Trust Company (underwriter and manager of these loans), the repayments were delayed because 'relief capital' from the Yunnan Government has not passed through the necessary government procedures.
This delay is the first instance of a (former) LGFV default in 2018, notes Caixin. Yunnan Capital, while still owned by the government, officially stopped financing for local government projects in mid-2016, according to the paper; it is now a state-owned investment and asset management company.
Through debt and equity investments, Yunnan Capital has very heavy exposure to underperforming state-owned assets based in Yunnan. According to Everbright Securities research, a significant proportion of its debt holdings rescued deeply indebted local overcapacity SOEs, particularly in coal-related industries. Low quality assets mean that Yunnan Capital has not been able to generate enough operating cash flow, and is forced to rely on new financing to fulfill liquidity requirements, notes Caixin.
In an article published in '19th Party Congress Complimentary Report', Zhou Xiaochuan 周小川 People's Bank of China governor provided his take on China's financial system and urged that problems be addressed at their roots.
At the macro level, high financial leverage and liquidity risk are building up. By end 2016, the country's financial leverage—the ratio of total debt to GDP—reached 247 percent, in the business sector reaching 165 percent, exceeding the international average. SOEs and local governments are piling up debt, adds Zhou. In addition, the 2015 stock market turmoil and housing bubbles in some cities were significant contributors to excessive leverage being channeled into those markets.
At the micro level, financial institutions are facing mounting credit risk, as nonperforming loans pile up and eat into the banking sector capital buffer and defaults occur more often in the bond market. Finally, rampant expansion of shadow banking, plagued by multi-layered structuring of wealth management products, maturity mismatches between assets and liabilities, and implicit return guarantees is exacerbating cross-market and cross-region risk. Financial conglomerates and non-financial firms keen on investing in the financial industry are trying to make quick money through insider trading and affiliated-party trading.
Ineffective monetary intervention, coupled with financial regulatory fragmentation, has facilitated the buildup of risk, says Zhou. Monetary policy has been hijacked—greater money supply is called for both in good times, when money is sought to accommodate booming economic activity, and in bad times, when it's needed to pay off debts and spur growth. Regulatory fragmentation also results in redundant financial products of similar nature issued by different financial institutions in different regulatory standards.
Financial arrangements with a combination of SOEs and private enterprises, or a mix of 'real enterprises' and consortiums will enhance quality, further efficiency and reduce the risks of overseas investments, says Zhang Rui 张锐 Chinese Market Development Association director. Zhang argues that MoF's ‘Financial management measures for overseas investment of state-owned enterprises’, which has been active since 1 Aug 2017, does not translate into a change of policy direction to curb overseas investment, but an effort to upgrade their structure, quality and efficiency. Thus, investments that are congruent to the national strategic plan of de-capacity and structural upgrading will be supported, including investments along Belt and Road and investments in high-tech industries such as biomedicine and high-end manufacturing. Policy support will also be given to leading enterprises Going Global with robust market advantage and healthy financial structure.
Faced with soaring numbers of overseas investments, the 'Measures' warned enterprises going global on an 'irrational' basis, stresses Zhang. These were characterised by
These irrational overseas investments would inevitably increase the amount of outstanding foreign exchange funds. This will exacerbate capital outflow and negatively impact the balance and stability of the national foreign exchange reserve, says Zhang. He also adds that the biggest risk from these investments is the rise in corporate debt levels and the accumulation of non-performing bank debts.