driving the day
1. Read your rights
On Monday, Xinhua published newly revised Party regulations on safeguarding Party members’ rights.
Some context: These rules were last revised 15 years ago. They affect around 92 million Party members.
The regulations list 13 rights of Party members (China Daily):
- “[R]ights to know [Party policies], benefit from Party education and training, participate in discussions, offer suggestions and proposals, oversee Party affairs, call for dismissal or replacement [of cadres], participate in voting, stand for election, plead their cases, voice disagreements, and submit requests, appeals and accusations.”
Get smart: The right to call for dismissal or replacement of cadres is new.
The revision also revamped penalties for cadres who fail to respect these rights.
But the rights also come with strings, including:
- Not publicly disagreeing with the Party center’s official line
- Refraining from putting forward criticism, calls for dismissal or replacement, appeals, or accusations outside of the Party system
Get smart: The Party already has issues with transparency. It will be even harder for Party outsiders to figure out what’s going on under the new rules.
2. New year, new Li
Do you have a new year’s resolution?
Premier Li Keqiang does: He wants to improve China’s business environment even more than last year.
On Monday, Li presided over a State Council executive meeting where attendees reviewed the results of the Development Research Center’s assessment of regulations aimed at improving the business environment.
The assessment determined that recent efforts had yielded positive results, including:
- High levels of enterprise satisfaction with tax, fee, and red tape reductions
- The establishment of 20 million new market entities despite challenges posed by COVID-19
The assessment also highlighted areas for improvement, including:
- Uneven regional implementation
- Inefficient processes around tendering and bidding, intermediary services, and financing
Li pledged to do better (Xinhua):
- “Greater efforts shall be made to address the prominent issues raised by market entities.”
- “Difficulties in getting administrative approvals and inadequate enforcement of oversight remain acute concerns.”
Get smart: The fact that Li and co. are collecting, and reflecting on, reports about the business environment shows that they’re serious about easing burdens on enterprises.
3. State Council passes draft Stamp Tax Law
A draft Stamp Tax Law was approved at Monday’s State Council executive meeting.
Some context: The stamp tax was previously governed by a set of interim regulations. This move is part of ongoing efforts to implement “law-based taxation,” which requires existing taxes to be upgraded to laws enacted by the National People’s Congress.
So far, the draft law hasn’t changed much:
- The overall stamp tax system, including preferential tax policies, is unchanged.
- Taxes for contracts covering processing, construction surveys and design, cargo transportation, and business accounting books will be reduced.
- Stamp taxes on business licenses will be abolished.
More context: National stamp tax revenues grew by 27.9% from January to November 2020, but still only accounted for around 2% of all national tax revenue.
- Stamp taxes levied on securities transactions accounted for nearly 60% of all national stamp tax revenue during that time.
- This portion of stamp tax revenue grew by 49.2% y/y during that time.
Get smart: These revisions, and law-based taxation in general, is part of the broader push to improve the business environment (see previous entry).
Get smarter: The revenue reductions from reducing some stamp taxes will be more than covered by growing tax revenue from securities transactions.
4. Foreign investment encouraged in new industry catalogue
On December 28, the macro-planner (NDRC) and commerce ministry (MofCom) released the 2020 edition of the Encouraged Industries for Foreign Investment Catalogue.
- This catalogue lists industries where foreign investment will receive preferential policy treatment.
- It updates the 2019 version (see July 1 Tip Sheet).
Foreign investment remains a top priority for the NDRC, despite broader efforts to minimize exposure to international supply chains.
That’s probably because foreign companies contribute roughly (NDRC):
- 25% of China’s value of gross output
- 20% of China’s total tax revenue
- 7% of China’s total employment
- 40% of China’s trade value
The catalogue contains two lists:
- A nationwide list including 480 encouraged industries – 65 more than in 2019.
- A list for the central, western, and northeastern regions including 755 encouraged industries – 62 more than in 2019.
The catalogue encourages foreign investment in:
- Production services
- High-end manufacturing
- Production-oriented service industries
- China’s central and western regions
Foreign investment in the encouraged industries will enjoy:
- A 15% corporate income tax rate – down from the standard 25%
- Prioritized and discounted land use
- Certain tax exemptions on imported equipment for self-use
Get smart: Officials see foreign investment as a tool to secure China’s crucial supply chains, as well as an important pillar of the dual circulation strategy (see November 4 Tip Sheet).
5. Sowing the seeds of growth
On Monday, an interview with Tang Renjian – the newly appointed Minister of Agriculture and Rural Affairs – made front pages across state media.
At first glance, Tang’s points on food security and rural revitalization look pretty boilerplate.
- We think it’s worth a read because top leaders at this year’s Central Economic Work Conference (CEWC) got surprisingly specific about their ag sector priorities (see yesterday’s Tip Sheet).
Tang doubled down on the CEWC’s crop research priorities, calling for
- Setting 14th Five- Year Plan goals for progress on domestic seed and livestock genetic research
- Identifying and addressing choke-point technologies in ag genetics, and speed up innovation
- “Ensur[ing] that Chinese grain primarily uses Chinese seeds.”
Tang also expounded on a couple more talking points from the CEWC, namely:
- Protecting large tracts of high-quality farmland and preventing “de-grainification” (see November 18 Tip Sheet)
- Transitioning from poverty alleviation to rural revitalization (see December 4 Tip Sheet)
Get smart: Small farmland plots and poor crop varieties impede both food security and economic development of the ag sector.
Get smarter: As long as some 40% of China’s population continues to live in rural areas, China’s economic growth necessitates rural development.