august: what is the new model

the future: Huairou Science City, destination for SOE scitech investment?

An inflection point for the PRC economy is approaching. Headlines like the Economist’s ‘Xi’s failing model: why he won’t fix China’s economy’ echo global investor concern. Prime cash cows, real estate developers, are going down. PRC commentators implicitly reveal local angst as well. Far from his usual bravado, Wang Wen 王文, director of the Chongyang Financial Institute, put out a heartfelt call for ‘rekindling faith in China’s rise,’ evidently m.i.a. since the 2022 lockdowns.

The centre, indeed, likely has the wherewithal to spike the economy—but is Beijing’s cool approach to stimulus a deeper signal? Is the Politburo Standing Committee now hunkering down on a different model? If so, what is it?

Mega real estate developers are getting scant sympathy. Country Garden, one of the largest, failed to honour a number of maturing bonds and restructured others, prompting fears of another wave of developer defaults. New starts are the last thing Bejing wants. Instead, it calls for finishing partly built blocks and supporting mortgages and homebuyers to stabilise existing stock.

Fears of deflation grew through August, with the first negative figures since March 2021. Another interest rate cut provided more monetary stimulus and support for bank profits.

Officials meanwhile doubled down on support for domestic capital markets, with a 50 percent cut in stamp duty on securities trades; CSRC (China Securities Regulatory Commission) summoned long-term investors, ‘guiding’ them to further embrace markets. Central rhetoric makes much of accepting local private capital as key to the core vision of transition to an advanced, industrialised country. More guidance for investors and funds is likely. 

Pressure has risen for SOEs to further invest in strategic emerging industries in the scitech sector. Key to their growth, capital investment is held to determine tech R&D’s fundamental stage. This drive is intended to underpin the ‘modern industrialised system’ comprising new energy, new generation IT and biotech, long listed as ‘future industries’.

Trade plunged further in July, continuing a trend downwards since May 2023. The BRICS alliance, recently growing its membership, unveiled new initiatives in trade, platform economy and supply chains, potentially opening a new channel for the PRC. MofCOM announced support for land-sea corridors to improve trade with BRI and RCEP partners. The State Council issued Opinions on standard setting, visa protocols, intellectual property and communication channels of concern to international firms. Setting aside ‘opening’ aspirations, security concerns will remain deal-stoppers for Beijing.

Duties on Australian barley were finally lifted after months of review. Tariffs will no longer block purchase of quality Australian grain by eager PRC brewers. Fear for their market share now shifts to other global barley suppliers. On grounds of risk of radioactive contamination caused by water from the Fukushima nuclear plant, GAC (General Administration of Customs) halted all import of Japanese aquatic products on 24 August. Deemed political, the move will have limited impact on other Sino-Japan trade. Fish exporters, however, stand to lose some 22 percent of their business.

New ‘Guiding opinions’ on electric power system reform and building a new framework are in the works. The awaited text, say experts, positions the state as industry architect rather than funder. A shift to a more market-guided and flexible setup was mooted in updated ‘green power’ market rules, making it easier for SMEs to buy renewable power. The GEC green electricity certificate scheme is thus made over to include all renewable power initiatives, making GECs the sole verifier of domestic renewable power consumption.

Extreme weather has added to a rebound in CO2 emissions in H1 2023, with a drought-driven plunge in hydropower forcing provinces to double down on coal. Planned new renewables may soon be able to cover electricity demand growth, yet vulnerability to rising temperatures and ‘climate whiplash’ events of the power system and society at large will need to be addressed, reports CarbonBrief. MEE and other agencies issued a Notice on expanding the pilot project for climate-adaptive cities. With a target of 100 participating cities by 2030, the pilot faces the major hurdle of making China’s urban areas resilient to increasingly frequent extreme weather events. 

In a minor win for the environment, action is underway to curb the growth of the coal-to-chemicals industry, known for its huge carbon footprint. Growth targets set by the 13th 5-year plan have been discarded; under a Notice issued by NDRC and central agencies, existing plants are urged to upgrade to low-carbon specs.

A 5-year reform plan (2023-27) for the procuratorate has appeared. While reinforcing the legal functions of its offices and improving public interest litigation, they are on course to serve the state in new ways: safeguarding national security and curbing financial risk. Better judicial accountability is the point, not least clarifying the duties of assistant prosecutors. Indispensable in case handling, the latter nonetheless lacks standing.

An anti-corruption campaign has hit the health sector hard. Its unprecedented scale has brought down Party secretaries and hospital directors alike. The State Council, nonetheless, appears to be safeguarding FDI in biomed. More measures related to improving grassroots healthcare were released in another attempt to ease urban-rural disparities.

Graduation season has arrived. While no longer publishing employment data, state agencies and job platforms have a keen eye on how graduates fare in finding jobs. The growing numbers of students returning to China from overseas are also facing dwindling job prospects. The impact of the 'double reduction' policy and the falling number of international schools are on the education policy radar.

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