1. Liu He charts the future of the financial system
On Wednesday, Vice Premier Liu He was front and center at the annualFinancial Street Forumin Beijing.
During his keynote address, Liu sounded an optimistic note about China’s economic recovery:
- He said it was highly probable that, against all odds, China would register positive growth this year.
Liu also had some advice for the financial sector:
- Adhere to a prudent and flexible monetary policy
- Vigorously develop China’s capital markets
- Build a multi-level banking system by increasing banks’ ability to serve the real economy
- Harness the power of financial technology while avoiding its pitfalls
- Promote comprehensive opening by creating a fair market environment
Get smart: Expect policies that serve these objectives to figure prominently in the upcoming 14th five-year plan.
2. State Council tweaks fiscal transfer mechanism
Yesterday, the State Council did its thing – holding its weekly executive meeting.
Top of the agenda: The central government’s fiscal transfer mechanism.
Some context: In May, the central government introduced the direct transfer of fiscal funds between the central and local governments – bypassing provincial authorities – to quickly get money out to the localities and better help the ailing economy.
The mechanism has been a roaring success (Gov.cn):
- Of the RMB 2 trillion in additional fiscal spending put aside for helping local governments handle the economic fallout of the COVID-19 pandemic, RMB 1.7 trillion has already been allocated.
The State Council is so pleased with the mechanism’s efficiency that they want to make it a permanent arrangement.
To do so, they decided that:
- Going forward, more fiscal transfers will go through the direct transfer mechanism.
- The central government will advance a certain portion of those transfers.
- The central government will set up atraceability system to monitor the use of allocated funds.
Get smart: The central government is steadily chipping away at provincial governments’ power to distribute fiscal resources.
3. State Council cuts red tape
Yesterday’s State Council meeting wasn’t just about central-provincial-local fiscal power dynamics (see previous entry).
The councilors also discussed ways to cut the burden of administrative approvals for individuals and businesses (Gov.cn):
- “For high-frequency [administrative] items related to businesses operations and people’s lives, or certificates that are difficult to obtain…[we must] promptly implement the notification and commitment mechanism.”
Implement the what now?
- The notification and commitment mechanism (NCM) is a new government trust exercise which waives the obligation of individuals or companies to provide certain certificates – on the condition that they promise they meet all requirements.
- The system has been in a pilot phase for the last two years, and officials are now looking to expand its implementation.
Not all administrative approval items are included:
- Those pertaining to higher public risks, such as public security, environmental protection, and personal health, are off limits.
Also, there’s one small catch:
- Companies or individuals who break their promise will not only get punished, but also have their social credit records affected.
Need a refresher on social credit? Check out the Trivium SCS Intro Guide here.
Get smart: The NCM will help to speed up approval processes.
- That it also makes the government’s case forbuilding a social credit system stronger is just a bonus.
4. Decentralizing from on-high
Premier Li Keqiang hasn’t been the only one talking about cutting red tape recently (see previous entry).
On Wednesday, Executive Vice Premier Han Zheng presided over a meeting of the State Council Coordination Group to Promote the Transformation of Government Functions and the Streamlining of Administrative Procedures.
Pro tip: Those in the know are already referring to the body by its acronym, SCCGtPtToGFatSoAP.
Some context: As the name suggests, the body is broadly focused on reducing bureaucratic hassleby delegating power and optimizing government services.
But Han is concerned that some of the body’s hard work isn’t making itself felt.
Specifically, Han highlighted several problems that need to be addressed (Xinhua):
- Officials or bodies that hold power overkey approval processesare sometimes unwilling to delegate.
- Some enterprises can’t make adequate use of the authority that’s been delegated to them.
- Some streamlining measures aren’t well understood or broadly felt by the masses.
Get smart: Delegating and decentralizing cumbersome processes is key to improving China’s business environment, but that’s often easier said than done.
Get smarter: Han and co. are spot on in identifying sticking pointsin the government’s drive for streamlined administration.
5. Subsidiesfor renewable energy capped
Since Tuesday, China’s energy industry has been in a tizzy over a new government notice which sets an upper limit on government subsidies for renewable energy projects.
Some context: China began subsidizing renewable energy production in 2006, without setting a cap for how long or how muchpower will be subsidized.
The problem: The open-ended subsidy offer led to a huge backlog of unfulfilled subsidy payments – as much as RMB 300 billion at the end of 2019.
Under the new rule (MoF):
- Wind, solar, and biomass energy producers will each see a cap on the maximum amount of subsidized electricity they can transmit to the power grid during thelife cycle of each project.
- Subsidy money will stop after 20 years, even if the project hasn’t produced enough power to reach the maximum subsidized allowance.
Get smart: Capping subsidy levels will help renewable energy producers better predict the profitability of each project and should pave the way for solving the backlogged subsidy payment problem.
- This could be done through bond issuance, as we’ve previously outlined in our renewable energy policy monitoring service.
- To know more, check out our offerings here.
Get smarter: Winding down subsidies means the government will need to rely on other ways to support the industry — if it wants to continueincreasingrenewables’ role in China’senergy mix, as promised.