driving the day
1. DCS: The origin story
Over the weekend, the Party’s top journal, Qiushi, published an excerpt of Xi Jinping’s remarks at the seventh meeting of the Central Commission for Financial and Economic Affairs (CCFEA) back in April.
Some context: Held on roughly a quarterly basis, CCFEA meetings often discuss the country’s long-term economic strategy.
More context: This is the first time the topics discussed at the meeting have been made public.
Xi told CCFEA members that six long-term issues were on his mind (Qiushi):
- Developing a strategy to expand domestic demand
- Optimizing and stabilizing industrial and supply chains
- Improving China’s urbanization strategy
- Adjusting priority areas for RD investment
- Promoting the harmonious co-existence of nature and humans
- Improving the public health system
The meeting also marks Xi’s earliest known mention of an idea which sounds an awful lot like the dual circulation strategy (DCS):
- “There is no contradiction between expanding domestic demand and opening up.”
- “The smoother the domestic [economic] cycle is, the more…conducive [it is] to forming new advantages in participating in international competition and cooperation.”
Get smart: The rest of us plebs didn’t hear about DCS for the first time until May. We suspect this was when DCS was born.
2. Xi Jinping, first of his name, unbreaker of supply chains
DCS isn’t all Xi discussed during the April CCFEA meeting (see previous entry).
He also broached a topic occupying the attention of corporate boards across China.
- Namely, how to secure China’s supply chains amid heightened US-China tensions and the COVID-19 pandemic.
Xi believes redundancy is key (Qiushi):
- “Efforts should be made to build an independent, controllable, safe and reliable industrial chain and supply chain, and to strive to have at least one alternative source for important products…and form a necessary industrial backup system.”
What it means: Xi doesn’t want another Huawei-esque component-sourcing nightmare.
Xi also hinted that he wants to feed supply-chain trolls a taste of their own medicine:
- “[We should] continue to enhance our advantages…in high-speed rail, electrical power equipment, new energy, communication equipment, and other fields…increase the dependence of international industrial chains on our country, and form a powerful countermeasure and deterrence ability for foreign parties who artificially cut our supply.”
Get smart: The problem with Xi’s plan to weaponize Chinese tech is that China hasn’t yet become an indispensable supplier for most of the aforementioned industries.
3. Smells like Plenum spirit
On Saturday, Vice Premier Liu He chaired a meeting of the State Council’s Financial Stability and Development Committee (FSDC).
Why the get-together?
- To study the spirit of the fifth plenum, of course!
The fifth plenum entails a lengthy financial reform checklist. According to the FSDC, it will involve:
- Building a modern central bank
- Improving the money supply control mechanism
- Improving the formation of market-based interest rates
- Ensuring financial institutions support the real economy
- Enhancing financial inclusiveness
- Supporting the healthy development of small and medium-sized banks
- Implementing a registration-based stock listing system
- Standardizing the process for delisting stocks
- Increasing the role of direct financing in funding companies
- Improving the deposit insurance system
- Showing “zero tolerance” for violations of laws and regulations
- Maintaining financial stability
- Preventing systemic financial risks
Look familiar? It should. Some of these items have been on the regulators’ to-do list for years.
The FSDC also outlined other priorities, including:
- Promoting innovation and entrepreneurship while controlling risks
- Ensuring equal treatment for similar businesses
- Protecting the legitimate rights and interests of financial consumers
- Enhancing antitrust law enforcement
Get smart: These reforms may not look particularly impressive individually, but they’re a big deal collectively.
Get smarter: Liu He and co. are serious about overhauling China’s financial system.
4. Inspiring and realistic
On Thursday, at the conclusion of the fifth plenum, top Party leaders released their broad recommendations for the 14th Five Year Plan (FYP) (see the October 30 Tip Sheet).
With the Party plenum out of the way, the state can play!
- And by “play” we mean proceed with the solemn procedural work of finalizing the 14th Five-Year Plan (FYP).
On Friday, Premier Li Keqiang convened the State Council’s leading group for formulating the draft FYP.
Li said the Party’s recommendations will serve as the basis of the FYP (Gov.cn 1):
- “The arrangements proposed by the Party Central Committee…on the 14th FYP and the 2035 long-term goals are a concrete blueprint for promoting economic and social development.”
He also wants the FYP to be measurable and achievable:
- “Targets for…development and improving people’s livelihoods require scientific indicators and specific goals, so the plan is both inspiring and realistic.”
And he had some good news for business (Gov.cn 2):
- “We must have the courage to…deepen reform in key areas…and create a marketized, legalized, and internationalized business environment.”
- “[We should] implement high-level opening-up through more powerful means to…achieve win-win results.”
Now what? The top-line goals are clear, but policymakers will spend the next few months wrangling over specific quantitative targets and other line items.
5. Ren Zhengfei enters beast mode
War of annihilation.
- No, it’s not the newest release by your favorite Norwegian death metal band.
- It’s the way Huawei founder and CEO Ren Zhengfei described the company’s outlook over the next two years.
In a speech delivered on Tuesday and released on Saturday, Ren said that 2021-2022 would be a critical period for Huawei’s future (The Paper):
- “[The next two years will be] the most difficult two years for survival and development.”
- “Only with sufficient strength can we concentrate our superior forces to win the ‘war of annihilation.’”
To rise to the challenge, Ren wants to assemble an A-team of top-level talent:
- “We have…space to accommodate the talents of the world and give full play to their creative abilities.”
Note the use of the word “world”:
- Ren sees overseas talent as key to Huawei’s future and wants the company to focus on welcoming both Chinese and foreign whiz-kids into the fold.
And, oh yeah, Ren wants Huawei to significantly boost its RD budget.
Get smart: Huawei needs to make some serious zero-to-one innovations if it wants to break Washington’s stranglehold over the company.
The big picture: Recruiting and retaining high-end talent is a key objective not just for Huawei, but the Chinese tech industry as a whole.