DRIVING THE DAY
1. China’s blueprint to become tech superpower
On Wednesday, Vice Premier Liu He chaired the first meeting of the State Council’s leading small group on technology.
Top of the agenda: Reviewing the country’s Medium- to Long-term Plan for Science and Technology Development (2006-2020), commonly known as the MLP.
Some context: The MLP has provided the overarching framework for China’s technology policy for over a decade, funneling billions into research funding and subsidies for hi-tech industries.
With the MLP set to expire soon, it’s time for a new an update.
According to Liu, the stakes could not be higher:
- “Scientific and technological innovation capacity will be the key factor determining comprehensive national strength and international competitiveness.”
Get smart: Because of the fast-moving nature of technological change, fifteen-year plans for science don’t work well. For instance, the MLP failed to anticipate the importance of big data and artificial intelligence.
What to watch: MoST will likely commission think tanks and research institutes to start preliminary research for the next plan soon. The issues that MoST asks them to research will give a sense of how the next plan might be structured.
FINANCE and ECONOMICS
2. China going all in on crypto
The central bank (PBoC) is ramping up its research into blockchain technology.
It has a new research lab in Nanjing, and recently established a company in Shenzhen to create a blockchain trade finance platform (Cointelegraph):
- “The Digital Currency Research Lab established its fully owned subsidiary in the southern Chinese city of Shenzhen, also in collaboration with the municipal government.”
- “Shenzhen is reportedly slated to be the first city to test the PBoC’s ‘legal’ digital currency, and to provide the systematic preparation for its launch, including cooperation with the country’s regulators.”
Get smart: The PBoC is putting more resources into researching a national cryptocurrency than any other major central bank.
What’s driving the PBoC: Regulators hate current forms of cryptocurrency because such currencies operate beyond the control of the government. Bitcoin, in particular, is often used as a channel to get money out of China illegally.
Creating a nationally controlled cryptocurrency could solve those problems, while keeping the benefits of cryptocurrencies – lower transaction costs, faster settlement, and less fraud.
What to watch: It’s very likely China will be the first major economy with a widely used cryptocurrency.
Cointelegraph: China: Central Bank’s Digital Currency Lab Launches Research Center in Eastern Province
21st Century Biz: 独家丨央行在深圳设立金融科技公司，运营贸易金融区块链
POLITICS and POLICY
3. Africa week continues
The Forum on China-Africa Cooperation (FOCAC) concluded on Tuesday, but Wednesday in Beijing was still dominated by meetings with African leaders.
According to last night’s evening news, Xi met with leaders from 12 countries on Wednesday:
- Sao Tome and Principe
He also met with the chairperson of the African Union.
Xi was not the only top official to press the flesh on Wednesday. All six of the other Politburo Standing Committee members also met with African leaders on Wednesday.
African leaders appreciate the attention (QZ):
- “[Rwandan] President Paul Kagame…said China understood Africa’s global position and engaged it as an equal partner.”
- “Kagame, who is a critic of foreign aid, praised Beijing’s “win-win” partnership.”
- “President Uhuru Kenyatta said Kenya ‘appreciates’ China’s support of the country’s development agenda.”
- “We are satisfied with the tremendous progress achieved in our bilateral cooperation, and continues to open up new areas of cooperation.”
Get smart: China is putting more effort than any other country into building ties with African states. That does not go unnoticed on the continent.
POLITICS and POLICY
4. Natural gas policy unlikely to avert a winter shortage
Last winter’s natural gas shortage left many residents and businesses without heat and was a big embarrassment for the government.
That means boosting supplies of natural gas has become a high priority for policymakers.
To that end, on Wednesday, the State Council released opinions to promote natural gas use in China.
The opinions will promote several measures to increase supply, including:
- Extending subsidies for unconventional gas exploration
- Building out the country’s natural gas pipeline network
- Building more liquid natural gas (LNG) import terminals
- Increasing gas storage facilities
The government is right that a lack of infrastructure is a major bottleneck to increasing natural gas usage.
The problem is that it takes time to build infrastructure, so we could well see another gas squeeze this winter – especially if it is a cold one.
Businesses beware: The opinions explicitly state that in the case of gas shortages, priority should be given to residential users. That means that many businesses could be out in the cold this winter.
POLITICS and POLICY
5. Social security – just another tax
Business sentiment in China is dour. The economy is slowing, the trade war is biting, and private companies are struggling to get financing.
Businesses are also bracing for stricter enforcement of tax laws (see last three days’ Tip Sheet), which many companies have been skirting for years.
As part of that push, the State Administration of Taxation (SAT) is taking over responsibility for collecting social security contributions from businesses. The Ministry of Human Resources and Social Security had previously collected such payments.
What it means: Tax authorities have more visibility into a company’s books. So they will have a more accurate read on the amount of social security contributions that a given business should be making.
Some context: Social security payments add roughly 30% to an employee’s salary. The contributions are so onerous that less than 40% of businesses are fully compliant.
Get smart: This move will push costs up for a lot businesses. Most domestic commentators are calling for a cut to the size of fees to offset the pain.