DRIVING THE DECADE
1. Family planning may come to an end
Get excited: China’s legislature is in session this week.
One of the items on the agenda is a revised Civil Code.
The latest version of the code signals that China’s family planning policies could be coming to an end (Reuters):
- “All content on family planning has been dropped in a draft civil code being deliberated by top lawmakers on Monday, the Procuratorate Daily wrote in a post on its Weibo account.”
The government already relaxed family planning policies two years ago:
- “In 2016, the government allowed couples in urban areas to have two children, replacing a one-child policy enforced since 1979.”
Why it’s happening: Authorities are worried about China’s rapidly aging population – a problem that has been brought on by the one-child policy.
Why it matters: A population that is shrinking and growing older is a huge challenge for economic growth – it means fewer productive workers and more people that are dependent on those workers. So officials are reversing course – even incentivizing people to have more kids.
The rub: Scrapping limits on how many children families can have won’t immediately impact the birth rate at all. The damage is already done.
Reuters: China paves way to end family planning policy: state media
FINANCE and ECONOMICS
2. Inflation risk rising
Vegetable prices are shooting up in China.
That could be a problem, as rising food prices dent consumer wallets (Reuters):
- “The average wholesale prices of 28 vegetables, including carrots, spinach and eggplants, among others, [are]…up 11.7 percent from the first week of August.”
Recent flooding in a major vegetable-producing region of Shandong has people worried that prices could go even higher..
But the Ministry of Agricultural and Rural Affairs says not to worry:
- “The flooding in the city of Shouguang in the eastern province of Shandong will not push up national vegetable prices significantly as output there is small during the summer, the statement said.”
Instead, the ministry says the upswing is just a typical seasonal fluctuation – so no need for alarm.
Get smart: The last thing China’s central bank wants to deal with right now is a bout of inflation. There is no way the bank can raise interest rates, given that it is already trying to address its debt overhang AND support growth.
What to watch: In our view, inflation is the biggest and most likely risk facing policymakers. Keep an eye on this data.
Reuters: China says seasonal fluctuations, not floods, behind vegetable price rise
21st Century Biz: 寿光蔬菜受灾对全国菜价影响如何？农业农村部权威回应
FINANCE and ECONOMICS
3. Didi boycott prompts apology
Didi Chuxing is feeling the heat.
Some context: Didi is China’s main ride haling app (aka China’s Uber).
The company issued a public apology today after the killing of a female passenger stoked widespread anger.
Some context, per the BBC:
- “The move follows Didi’s decision to suspend its carpool service, Hitch, amid outrage over the incident.”
- “It was the second killing of a Hitch passenger in three months.”
- “On Tuesday, the company apologised to the family of the victim and said the incident had prompted a reckoning within the firm.”
- The apology also came after a “delete Didi” campaign began to spread across the Chinese web – urging users to remove the company’s app from their smart phones.
The company’s apology pledges to focus on safety and customer service instead of “size and growth as a yardstick for the company’s development.”
Get smart: This episode is exactly what Uber faced in the US – which shows that Didi is making the exact same mistakes. For all the differences in the countries’ tech ecosystems, one thing is universal – consumers demand safety in their services and products.
One problem: Didi has a near monopoly on the market, making it harder to prompt change.
BBC: Didi blames ‘ignorance and pride’ for carpool murder
Sina: 滴滴：保护措施未获用户认可前 顺风车无限期下线
POLITICS and POLICY
4. Liu He talks up the economy
Economic czar Liu He met with the international advisory council of China’s sovereign wealth fund, China Investment Corporation, this week.
Liu took the opportunity to address anxieties around China’s slowing economy:
- “The prospects for China’s economy are extremely bright.”
He also reiterated China’s commitment to open trade and investment:
- “No matter how the external environment changes, we will unswervingly push forward with reform and opening.”
- “[We will] unswervingly protect economic globalization and the multilateral trading system.”
Get smart: China’s economic prospects are indeed bright – but only if the government pushes through further liberalizing reforms. That’s a big if.
Get smarter: It seems that Liu is trying to give himself a pep talk. The economy is facing cyclical headwinds and the trade war isn’t helping.
One big question: This is an important moment for Liu. The knock on him has long been that he is more of a thinker than a doer. Can he steer the economy through all of the immediate uncertainty?
POLITICS and POLICY
5. Li Keqiang promises no tolerance for forced technology transfers
On Tuesday, Premier Li Keqiang met with Francis Gurry, director general of the United Nations World Intellectual Property Organization.
- “China is at a critical stage of economic upgrading and will adopt a stricter IPR protection system.”
- “Acts of infringing on intellectual property rights will be severely punished.”
Li also sought to address claims that foreign firms in China are often forced to transfer technology to domestic firms:
- “We treat domestic and foreign enterprises equally and will never allow compulsory technology transfer.”
Get smart: Believe it or not, intellectual property (IP) protection is actually quickly improving in China. One big reason is that domestic firms now have more of their own IP at stake – historically that is when we see countries boost enforcement. That’s nothing new.
Get smarter: Still, the ship may have sailed. Improvements in IP protection are too little too late in the opinion of many foreign firms and governments – the tide has shifted considerably against China here.
The bottom line: It will take a lot more than simple assurances from Li Keqiang to convince people that China is making concrete progress.
POLITICS and POLICY
6. China’s growing global footprint
The Chinese military is stepping up its involvement in Afghanistan:
- “China has started building a training camp for Afghan troops in a narrow corridor that connects the two countries – a project Beijing is fully funding to help its neighbour improve counterterrorism efforts, sources close to the military said.”
And they will be stationing their own troops there:
- “Once the camp is completed, the People’s Liberation Army is likely to send hundreds of military personnel, or at least one battalion, to Afghanistan.”
In case you didn’t know, the historical precedents here aren’t great:
- “It will be the first time in modern history for China to have a military presence in Afghanistan, which is known as the ‘graveyard of empires’ for being notoriously difficult to conquer and govern.”
But the move reflects a larger trend:
- “China set up its first overseas military base last year in Djibouti.”
The bigger picture: China’s growing power and global ambitions mean that it will have to expand its military presence around the world in the years to come. One big outstanding question is whether China is prepared to take on the ever-increasing costs – both in cash and human lives – that such moves entail.