More plenum pearls

1. Policy priority reshuffled

On Tuesday night, the Party dropped the full text of two documents that were deliberated on and approved at the fifth plenum of the CCP’s 19th Central Committee which wrapped up last week.

These were:

The Party’s recommendations to the 14th Five-Year Plan and vision for 2035
Xi Jinping’s explanation of the thinking behind the recommendations

Our thought: After reading the documents, we’re still sticking with our original analysis that the plenum didn’t signal any major change in policy direction.

Instead, the plenum reflected the Party’s confidence in its chosen path.

In his explanation,Xi projected that confidence (Xinhua 1):

“[In the next 15 years], our country has unique political, institutional, development, and opportunity advantages.”

But it wasn’t all self-congratulation and backslapping.

The worsening external environment has lit a fire under policymakers to address problems with the domestic economy (Xinhua 2):

“Since the [beginning of] reform and opening up [in 1978], we have encountered a lot of external shocks.”
“We ultimately prevailed by managing our own affairs well and securing our development foothold domestically.”

Get smart: We see three domestic policy issues moving up the priority ladder, namely:

Innovation and technological self-reliance (see entry #3)
Boosting incomes and reducing inequality (read more in today’s China Market’s Dispatch)
The expansion of the national security regime in economic and social affairs

Xinhua: 中共中央关于制定国民经济和社会发展第十四个五年规划和二〇三五年远景目标的建议

2. Shuttering the world’s factory

In his explanation of the Central Committee’s recommendations, Xi Jinping made the case that the dual circulation strategy (DCS) is what the country needs.

Some context: DCS is Beijing’s gameplan to change how China’s domestic economy interacts with the global economy by making it more resilient to external shocks.

Xi said that it was time for a new model:

“In recent years, as…the trend of anti-globalization has intensified, some countries have practiced unilateralism and protectionism, and the traditional international [economic] cycle has been significantly weakened.”
“Under such circumstances, we must…rely more on the domestic market to achieve economic development.”

Xi said that China had the assets to make it work:

“Our country has a population of 1.4 billion and its per capita GDP has exceeded USD 10,000.”
“It is the world’s largest…consumer market and with huge room for growth.”

And according to Xi, domestic circulation and international circulation can complement each other nicely:

“Promoting the formation of a smooth domestic economic cycle can better attract global resources, which will not only meet domestic demand, but also enhance the level of industrial technology development in our country.”

Get smart: Some foreign observers are nervous that DCS means getting shut out of the China market, but in the minds of policymakers, a bigger domestic market makes it harder for foreign companies to pull out.

Xinhua: 中共中央关于制定国民经济和社会发展第十四个五年规划和二〇三五年远景目标的建议

3. China goes all in on tech

Quelle surprise!

Technological development was front and center in the Central Committee’s recommendations for the 14th Five-Year Plan (FYP).

Some context: We knew that tech was going to figure heavily in the Central Committee’s 14th FYP recommendations based on the communique released immediately after the fifth plenum (see October 30 Tip Sheet).

The document pledged to (Xinhua):

“[S]trengthen the protection of intellectual property rights and greatly improve [the efficacy of] scientific and technological achievements.”
“Increase investment in research and development, improve the mechanism of government investment…and increase support for basic research.”

According to the recommendations, key research areas include:

Artificial intelligence
Quantum information
Integrated circuits
Life and health science
Neural science
Biological breeding
Aerospace technology

The document also said that businesses should do their part by:

“Giving full play to the important role of entrepreneurs in technological innovation and encouraging enterprises to increase RD investment.”
“Implementing tax incentives for enterprises to invest in basic research.”

Policymakers want to develop a talent pool by sweetening the deal for researchers by making it easier for them to profit off their innovations.

Get smart: Beijing sees sci-tech as the secret sauce which will turbo-charge the economy and break the American stranglehold over its supply chains.

4. Hello world

The Central Committee’s recommendations for the 14th Five-Year Plan (FYP) also had a bit to say about China’s opening to the rest of the world.

We’ve heard this tune before: The document pledged to improve the business environment for foreign companies.

Specifically, it said China must:

Improve the management of the negative list for foreign investment
Further open up the services industry to foreign investment
Protect the legitimate rights and interests of foreign enterprises

The document also promised that Beijing would protect the legitimate rights of Chinese firms overseas, a perhaps not-so-subtle nod to the recent scrutiny faced by Chinese companies in the US and other markets.

The recommendations also reaffirmed the Party’s commitment to yuan internationalization, but stressed that it would (Xinhua):

Allow firms to make their own decisions about currency use.
“Create a new type of cooperation based on the free use of the yuan.”

Get smart: That doesn’t sound particularly different from what policymakers have been doing for the past decade, a strategy that hasn’t done much to advance the cause of yuan internationalization.

Get smart: We reckon the really interesting part is the promise to help Chinese firms overseas, potentially signaling more assertive diplomacy in safeguarding the interests of China Inc.

5. Getting down to business

If you’re looking for a bright point today, the Party’s recommendations to the 14th Five-Year Plan on improving the business environment have got you covered.

Some context: Improving the business environment has been high on policymakers’ agendas for years now. And 2020 is no different (see July 22 Tip Sheet).

The Party is keenly aware that bureaucracy and policy barriers are a drag on growth. They want to reduce this by:

“Removing systemic barriers that hinder the…allocation of production factors and the circulation of goods and services.”
“Promoting market-oriented reforms to land, labor, capital, technology, and data markets and systems.”

More context: Technology and data started appearing on policymakers’ standard lists of “production factors” earlier this year.

The recommendations address some of the international business communities’ gripes. They call for China to:

“Adhere to equal access, fair supervision, and open, orderly, honest, and law-abiding competition.”
“Improve judicial protections and law enforcement for property rights.”
“Implement a unified negative list system for market access and continue to relax access restrictions.”

Get smart: There’s nothing new on this list, but it’s reassuring that the Party has some of the same gripes as we do.

What really matters to businesses’ bottom lines though is how effectively these policies will be implemented.

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