1.Managing expectations on a property tax
On Friday, deputy director of the State Council Research Department Guo Wei spoke to media about a coming property tax.
Some context: At last week’s Two Sessions, legislators put drafting a property tax law on the2019 legislative agenda.
The rub: A property tax worries investors and officials, as it may significantly curtailproperty activity.
Guo’s key message was that this will be a slow-moving process (21st Cent Biz):
- “There are a lot of very arduous tasks to be done in this regard.”
- “A large number of investigations should be conducted, the current situation should be carefully analyzed, different schemes should be formulated, and opinions from all sides should be widely sought.”
- “This will be a complex and arduous task. It really needs a lot of work.”
Get smart: That doesn’t exactly sound like a man who is in a hurry.
Our take: We think the political will now finally exists to push forward a property tax.
But, but, but…such a tax could cause one of the biggest changes in decades to the wayChina’s economy functions. So legislators will want to proceed cautiously.
21st Century Biz: 房地产税何时出？长效机制怎么定？国研室副主任这么说
2.Local governments face fiscal shortfall
Get ready – it’s going to be a rough year for local officials.
Beijing has announced big tax cuts for businesses, which are going to put pressure on already cash-strapped local governments (see March 5 Tip Sheet).
In an article over the weekend, Caixin calculated that half of the proposed RMB 2 trillion in tax cuts will be borne by local governments.
Local officials are relatively clear-eyed (Caixin):
- “Of the 30 provincial-level governments that had published their budgets for this year as of this week, 23 announced lower revenue targets than they had in 2018.”
- “And 14 have projected that fiscal revenue growth won’t even keep up with GDP growth.”
To address the shortfall, governments will spend less:
- “The central government has also asked all local authorities to reduce their general spending — the day-to-day expenditures of government agencies — by more than 5%.“
Authorities will also attempt to force state-owned enterprises to contribute more profits to government coffers (see March 7 Tip Sheet). But that’s unlikely to make up for the shortfall.
What it means: An already unhappy bureaucracy is going to get unhappier.
Businesses beware: With local governments increasingly cash-strapped, it’s inevitable that some will look to be more aggressive in issuing fines and collecting fees.
3.Foreign Investment Law – implementation in the works
At the conclusion of its annual session on Friday, the National People’s Congress (NPC) passed the Foreign Investment Law (FIL).
Some context: The law was fast-tracked as part of efforts to appease the US in the ongoing trade negotiations.
To get the law passed quickly, legislators scrapped some of the thornier issues in a previous draft, and instead passed a relatively vague piece of legislation.
That means that the practical implications of the law are still unknown.
But don’t worry. At his press conference Friday, Li Keqiang said that foreign businesses can expect clarity soon (gov.cn):
- “The government will introduce a series of matching regulations and directives to protect the rights and interests of foreign investors.”
- “These will be the important things for the government to do in the following weeks and months to see that this law will be truly operable.”
Get smart: The coming implementing guidelines will be critical in determining whether the law will genuinely improve the operating environment and open market access to foreign businesses.
Food for thought: Chinese leaders claim that they will give equal treatment to foreign and local companies. If that is really the case, why the need for an FIL at all?
Gov.cn: Premier Li Keqiang meets the press
4. The Partyis nervous about new media
In January, Xi Jinping chaired a Politburo study session on propaganda in the age of the internet (see January 28 Tip Sheet).
On Friday, the Party’s top theoretical journal Qiushi published Xi’s speech at the meeting.
Xi wants to make sure that the Party is controlling the narrative online:
- According to Xi, if the Party can’t control the Internet, it won’t be able to sustain long-term rule.
Fundamentally, Xi views the Internet as a tool:
- “If used well, [the internet’s] influence will benefit the country and the people.”
- “But if not used well, it could bring unpredictable damage.”
Xi’s intent on using this tool to propagate the Party’s message:
- “[We will] build new types of mainstream media…so that the Party’s voice…is transmitted more widely.”
And he wants to use the Party-state’s significant resources:
- “We must transform our advantages…in social governance, big data, and policymaking power to consolidate [the Party’s control over] mainstream ideological thinking and public opinion.”
Get smart: An already constrained information environment looks like it will be tightened further.
5.Party revisescadre appointment regs – again
Over the weekend, the party released revised rules for selecting top officials.
Some context: This is the second revision under Xi Jinping. A previous revision was released in 2014.
Comparing the newly-released rules with the 2014 version reveals several trends:
- Political loyalty is nowmost important in getting promoted.
- The Party is struggling to create clear criteria for assessment – the new criteria are vaguer than those in the2014 version.
- The Party has backed off its prohibition against employing officials with spouses or children overseas.
- Internal voting on promotions has been de-emphasized.
Get smart: The frequent retooling ofappointment protocolis a clear sign that the system is not working well.
Our take: The new rules don’t look like they will be very successful in improving the personnel system.