driving the day
On Wednesday, Xi Jinping chaired a meeting of the Central Commission for Financial and Economic Affairs (CCFEA).
Some context:The CCFEA is the Party’s top body for deliberating economic strategies. It typically meets three times a year.
Top of the agenda: Creating a more efficient logistics system.
Four government agencies presented reports on the issue:
- National Development and Reform Commission
- Ministry of Transport
- Ministry of Commerce
- People’s Bank of China
As the readout makes clear, this is important stuff (Gov.cn):
- “The efficiency of logistics is just as important as production efficiency, and is a critical component of raising the overall efficiency of the domestic economy.”
And right now, China is not making the grade:
- “The modernization level of our country’s logistics system is still not high.”
- “There exist numerous problems that still need to be solved.”
The overarching goal:
- “We must accelerate the completion of a unified domestic market.”
Get smart: China’s national market is highly fragmented, and a major source of economic inefficiency.
Get smarter: The big reason for China’s fragmented national market is local protectionism. Unfortunately, the readout didn’t even mention this problem.
2.Li Keqiang, the all consuming
On Wednesday, Premier Li Keqiang did his thing, presiding over the State Council’s weekly executive meeting.
What was Li’s topic du jour?
- Boosting consumption and stimulating domestic demand.
Here’s what Li had to say on the subject(Gov.cn 2):
- “COVID-19 has made a big impact on consumption.”
- “For China to achieve positive growth this year, boosting consumption is vitally important.”
- “Efforts should be made in line with our own national conditions to expand channels of consumption and stimulate domestic demand.”
Li had some ideas about how to make that happen, including:
- Faster buildout of “new infrastructure” like 5G and Internet of Things technology
- Ditto more traditional infrastructure like CBDs, industrial parks, and transportation hubs
- Introducing preferential tax policies to support the growth of new business
- Helping brick-and-mortar businesses to establish internet presences and vice-versa
- Extending social security coverage to people working in “new business models” and offering protection for flexible employment
Get smart:Boosting domestic consumption isn’t just a temporary strategy for overcoming the economic impact of COVID; it’s a central plank of Beijing’s new Dual Circulation Strategy.
Get smarter:Li’s proposed measures don’t do much to address the real problem behind sluggish consumption – reduced incomes are preventing people from spending.
3.Li wants some quality doctors
Boosting consumption was not all the state councilors talked about at yesterday’s executive meeting (see entry #2).
Also on the agenda: Advancing medical education.
Premier Li Keqiang said that the shortage of qualified medical personnel is a big problem (Gov.cn 2):
- “The total amount and structure of medical personnel in China are not suitable for the construction of a healthy China.”
- “The COVID-19 epidemic has shown that there are insufficient talents in public health, critical care and nursing.”
To deal with this issue, Li wants to see more efforts in:
- Strengthening the reform and innovation of medical education
- Improving the quality of medical training and medical talent
- Improving thecareer prospects of qualified clinically-trained physicians
And to make that happen:
- The Ministry of Finance will throw fiscal support at central and western regions to train more university medical majors.
- The training of nursing personnel will be elevated to the same level as that of medical staff.
- Centers for disease controlwill have to enhance cooperative training with medical schools.
- Traditional Chinese medicine classes should be taught more at medical schools.
- Clinical experience will carry more weight in the professional appraisal of doctors.
Get smart:The COVID-19 pandemic not only revealed the shortcomings of China’s healthcare system, but also heightened people’s awareness of medical issues.
Get smarter: The State Council wants to ensure people’s concerns are properly addressed.
4.China brings in the big dogs on Global Data Security
Now this is interesting.
Beijing’s top econ tsar, Liu He, is believedto have raised China’s new Global Data Security Initiative at today’s meeting withEuropean Commission executive vice-president Margrethe Vestager.
Some context:Announced by Foreign Minister Wang Yi on Tuesday, the initiative is China’s response to US efforts to keep Chinese technology out of allied cyberspace (see yesterday’s Tip Sheet).
For the EU, the sudden emergence of the plan was a bit…unexpected(SCMP):
- “[T]he EU was ‘caught by surprise’ by Wang’s announcement of the data security initiative, and…it was not on the agenda for Liu’s talks with Vestager.”
But should they have been surprised? Not really.
- China has been responding to US moves with a predictably proportional tit-for-tat over the past six months.
- This initiative, offered in reaction to America’s “Clean Network” initiative,follows that pattern perfectly.
Get smart: Liu represents heavy political firepower. His involvement means that support for this plan comes straight from the top.
Get smarter:This isn’t truly an”initiative” – it’s a negotiation masquerading as an initiative.
- Foreign governments may be tempted to dismiss the notion that China is truly interested in tacklingglobal data security issues, but they shouldn’t.
- This is a golden opportunity to bring China to the table on data-related issues that impact companies everywhere.
What to watch: Xi Jinping is scheduled to have a virtul summit with European leaders next Monday. That maybe the last window opportunity to improve EU-China commercial ties for a while.
5.Why DCS now?
Yesterday, Study Times, the Central Party School’s main periodical, published an op-ed on the Dual Circulation Strategy (DCS) by Liu Yuanchun, vice president of Renmin University.
Why it matters:Liu Yuanchun has the ears of top policymakers. He was also present at Xi Jinping’s symposium on the 14th Five-Year Plan and DCS in August and submitted a paperoffering his advice on the policies at the meeting (seeAugust 25 Tip Sheet).
Liu’s op-ed provides the most comprehensive run-down that we have seen so far of why China’s leadership choose to introduce the DCS.
Here’s the deal:
- As external demand has shrunk severely, this has required China to shift its economy from an export and investment-driven model to a domestic demand and innovation-driven model.
- The technology war with the US has also necessitated a shift to indigenous innovation in key technologies.
- On top of this, the trade pattern where Chinese businesses import raw materials to process and then export to foreign markets has locked China in the middle of the global value chain. To break out of the current situation and move higher upthe value chain, China needs to focus on improving the competitiveness of domestic companies.
- Finally, the domestic economic system is plagued by a number of problems, which make it fragmented and inefficient.
Get smart: None of the problems haunting the domestic economy are new, and the government has been working on tackling them all for a long time– with limited success.
- Enter 2020. Recentexternal shocks have worked as a catalyst to reignite momentum for some long-waited domestic reforms.
The bottom line: DCS isn’t fundamentally new policy, so much as it is a reaction to a fundamentally changed external environment.